The Life Cycle of Plants in India and Mexico
In the U.S., manufacturing plants grow or die. In contrast, surviving Indian plants exhibit little growth in terms of either employment or output. Indian plants start smaller and stay smaller. Most Indian manufacturing employment is at informal plants with fewer than 10 workers. In the U.S., most workers are at plants with more than 800 workers. Mexico is intermediate to India and the U.S. in these respects. The divergence in plant dynamics could reflect lower investments by Indian and Mexican plants in accessing markets (at home and abroad) and in process efficiency, quality, and variety. In simple GE models, we find that the difference in life cycle dynamics could lower aggregate manufacturing productivity on the order of 25%.
This paper was presented at the CFSP Savings and Financial Underpinnings of Macro Models Workshop in October 2010. The corresponding presentation is also available.