Input Complementarities & Weak Links: Evidence from Indian Manufacturing

The focus of my research is on linking empirical evidence about how firms operate and grow to macroeconomic theory in order to make progress in understanding the sources of cross-country differences in economic development. I am currently working on three chapters of my dissertation which all reflect this research agenda. My main project and job-market paper is co-authored with a fellow student in the Stanford Economics Department. In this project we ask the question: to what extent do the least productive sectors in developing economies become ‘bottlenecks’ and hold back economic development? Our country of focus in this project is India, which has undergone large structural reforms over the last 25 years. In order to answer our research question, we will first study – at the micro level - how easily firms (and hence sectors) can substitute away from inputs sourced from these low productivity sectors. We will do this using uniquely rich establishment-level data and exploiting a sudden policy change. These empirical results will have important implications for our understanding of the barriers to firm growth. Next, we will embed the results of our micro-analysis into an aggregate model that will allow us to identify bottleneck sectors. Our preliminary results are encouraging as to the strength of this mechanism.