Abstract
This article studies the degree of sectoral diversity across regions in India and examines its determinants. We construct a diversity index to represent sectoral diversity using information on the industry of work of the individuals across 14 industry sectors for 2011–2012 and compare with values for 2004–2005. We examine the relationship of diversity and indicators related to scale economies and skill intensity using ordinary least squares at a cross-sectional level as well as pooled estimates over the two time periods both at the state and the NSS region level. We argue and establish that the Indian regional economy is characterized by a trend towards high levels of sectoral diversity. Contrary to many strands of the literature, we provide empirical evidence that scale economies, as represented by the traditional parameters of size, cannot be used as a proxy for sectoral diversity. Skill intensity, on the other hand, emerges as a significant determinant of sectoral diversity particularly in the case of coastal regions. Regions with high sector diversity are characterized by a move towards higher skill levels, greater share of regular employment and a move away from labour-intensive production, thus clearly highlighting the importance of the labour and technology matching process.
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