Creating Jobs: Is Small Beautiful?



well I've always been interested in the role of government policies in promoting well-being so India in particular is an interesting case because they've been extensive regulatory changes and policies to try to make people better off but the kinds of regulations that India has directed towards small and medium enterprises are typical of the kinds of policies that many countries actually have for their small and medium firms so it's a more general and important question so the key findings for this research which as you mentioned is co-authored with Shanti nataraja and Leslie Martin the key finding of that research is that the promotion of small and medium enterprises by reserving certain products only for them didn't have the expected result so the idea behind the Indian government's policies which were known as small-scale reservation was to take a large number of products maybe thousand products and only small and medium enterprises could produce them so that this was tried to foster these small firms so it was expected that by removing those policies which the Indian government did in the 2000s they got rid of all of them we would have thought that actually firms would suffer and wouldn't grow as quickly the result is quite surprising what the result shows is that on net employment and wages actually grew faster once these restrictions were removed what our research shows is that employment generation is really focused on either young firms new firms or larger enterprises and you might wonder why is it that employment is being generated in India by these younger firms or these larger firms when conventional wisdom suggests that it would be small medium enterprises would be the source of of growth well we think that the reason we're getting these unexpected findings is because essentially young firms are really the key innovators in India probably in other countries as well and so it's youth that's really important and also larger firms have the connections needed to enter the market they have the connections needed to be able to access Capital knowledge and a well educated workers so when you think about it it actually seems almost obvious in the end that it's the young larger firms that are more likely to generate employment growth we think that our research really has much broader applications although of course India is an extremely important country we think this research is also relevant to many other countries including countries like the United States and countries like France and many other countries which really promote small and medium enterprises so in fact we know that this research is relevant because our research is also linked to other recent research that's been done for example in the United States by John haltiwanger at the University of Maryland his research along with his cars also shows that in the u.s. case it's the younger larger firms that are generating more employment the advantage of our research is that we actually have what's called a natural experiment the elimination of a regulatory framework which allows us to look at before and after which other researchers have not been able to exploit to understand this problem so the policy implications are that if you want to promote employment growth then restricting the product the the production of certain goods for certain sized firms is not the way to go the way to go would be to encourage entry by younger firms or to encourage larger enterprises and that's more likely to yield the kind of outcomes that governments are looking for so there's a perception among economists among policymakers that that small is beautiful what our research suggests is that that is clearly not the case if you're trying to maximize employment growth if you want to maximize employment growth you really want to focus on the younger firms but that's not to say we shouldn't be promoting small and medium enterprises the best way to promote them is basically not to discriminate against them so don't make it harder on small medium enterprises to enter in because we want new enterprises but explicit policies to encourage being small are not a good idea so tax holidays that are only focused on small and medium enterprises for example are not a good way to go that's what our research suggests so I'm very excited about an ongoing research project also on India where we are looking at the effects of hundreds of regulations to try to improve the environment in India there have been many different regulatory changes some of them mandated by the Supreme Court others done at the state and local level and we're particularly interested in trying to identify what kinds of changes either through regulations or price changes can make firms behave in a cleaner more environmentally friendly way so that's our that's our ongoing project on India I'm also doing a number of other research projects on China looking in particular at the success of their industrial policies which is an area that I find particularly important you

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