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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper explores the causes of India’s productivity surge around 1980, more than a decade before serious economic reforms were initiated. Trade liberalization, expansionary demand, a favorable external environment, or improved agricultural performance did not play a role. We find evidence that the trigger may have been an attitudinal shift by the government in the early 1980s, which, unlike the reforms of the 1990s, was pro-business rather than pro-market in character, favoring the interests of existing business rather than new entrants or consumers. A relatively small shift elicited a large productivity response because India was far away from its income possibility frontier. Registered manufacturing, which had been built up in previous decades, played an important role in determining which states took advantage of the changed environment.

We study the effects of the progressive elimination of the system of industrial regulations on entry and production, known as the “license raj”, on registered manufacturing output, employment, entry and investment across Indian states with different labor market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labor market institutions grew more quickly than those in pro-worker environments.

in New York City and set an ambitious agenda for improving human welfare. These goals, which are elaborated at

In recent years, comparative economics experienced a revival, with a new focus on comparing capitalist economies. The theme of the new research is that institutions exert a profound influence on economic development. We argue that, to understand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and those of dictatorship. We then apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice.

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 30-50 % in China and 40-60 % in India. We are indebted to Ryoji Hiraguchi and Romans Pancs for phenomenal research assistance, and to numerous seminar participants, referees, and the editors for comments. We gratefully acknowledge the financial support of the Kauffman Foundation. Hsieh thanks the Alfred P. Sloan Foundation and Klenow thanks SIEPR for financial support. The research in this paper on U.S. manufacturing was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the California Census Research Data Center at UC Berkeley. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to insure that no confidential data are revealed. Emails:

This is an attempt to derive broad, strategic lessons from the diverse experience with economic growth in last fifty years. The paper revolves around two key arguments. One is that neoclassical economic analysis is a lot more flexible than its practitioners in the policy domain have generally given it credit. In particular, first-order economic principles—protection of property rights, market-based competition, appropriate incentives, sound money, and so on—do not map into unique policy packages. Reformers have substantial room for creatively packaging these principles into institutional designs that are sensitive to local opportunities and constraints. Successful countries are those that have used this room wisely. The second argument is that igniting economic growth and sustaining it are somewhat different enterprises. The former generally requires a limited range of (often unconventional) reforms that need not overly tax the institutional capacity of the economy. The latter challenge is in many ways harder, as it requires constructing over the longer term a sound institutional underpinning to endow the economy with resilience to shocks and maintain productive dynamism. Ignoring the distinction between these two tasks leaves reformers saddled with impossibly ambitious, undifferentiated, and impractical policy agendas.

The Centre for Market and Public Organisation (CMPO) is a leading research centre, combining expertise in economics, geography and law. Our objective is to study the intersection between the public and private sectors of the economy, and in particular to understand the right way to organise and deliver public services. The Centre aims to develop research, contribute to the public debate and inform policy-making. CMPO, now an ESRC Research Centre was established in 1998 with two large grants from The Leverhulme Trust. In 2004 we were awarded ESRC Research Centre status, and CMPO now combines core funding from both the ESRC and the Trust. Centre for Market and Public Organisation

Studies of the effects of employment protection frequently examine protective legislation as a whole. From a policy reform perspective, however, it is often critical to know which particular aspect of the legislation is responsible for its observed effects. The American with Disabilities Act (ADA), a 1990 federal law covering over 40 million Americans, is a clear case in point. Several empirical studies have suggested that the passage of the ADA reduced rather than increased employment opportunities for individuals with disabilities. To the extent this is true, it is crucial to credibly disentangle the different features of this complex and multi-faceted law. Separately evaluating the distinct aspects of the ADA is important not only for determining how the law might best be reformed if some aspects of it produce negative employment effects, but also for improving our understanding of the potential consequences of ADA-like provisions in race and other civil rights laws. This paper exploits state-level variation in pre-ADA legal regimes governing disability discrimination to separately estimate the employment effects of each of the ADA’s two primary substantive provisions. We find strong evidence that the

This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz (1984)), have been o ered as solutions to the problem of enforcing an incomplete contract. It is shown that the efficiency of these solutions is very sensitive to the characteristics of the good or service exchanged. In general, neither the repeat purchase mechanism nor efficiency wages is the most efficient in the set of possible relational contracts. In many situations, total output may be increased through the use of performance pay and through increasing the quality of law.