Nishanth Naidu Vadduri RCG School of Infrastructure Design and Management Indian Institute of Technology Kharagpur
REGIONAL ANALYSIS OF INDUSTRIES OF ANDHRA PRADESH USING SHIFT & SHARE TECHNIQUE:
What is Shift-Share? The Textile Industry, for example, gained about 2442.96 crores INR between 2005 and 2010. What factors explain this 67% percent growth? The shift-share technique has been used to answer this type of question. The technique is based on the assumption that local economic growth is explained by the combined effect of three components: national share, industry mix, and regional shift. Thus, one can apply shift-share to determine how much each component contributes to local economic growth. In addition, the shift-share technique may be used to identify a local economy’s competitive industries. A competitive industry is defined as one that outperforms its counterpart at the national level. And the Formula Is... SS = NS + IM + RS SS= shift share NS= National Share IM=Industrial Mix RS= Regional Shift The equations for each components are : NS = S(t-1) * ( oNt / oN (t-1) ) IM = [S(t-1) * ( iNt / iN(t-1) )] – NS RS = S(t-1)* [ (S(t)/ S(t-1) - ( iNt / iN(t-1) )] What do the subscripts, superscripts and the alphabets indicates? S(t-1) = total exports of an industry (i) at the beginning of the analysis period (t-1). S(t) = total exports of an industry (i) at the end of the analysis period (t).
= total exports of the Nation at the beginning of the analysis period (t-1).
t oN =
total exports of the Nation at the end of the analysis period (t). exports of the Nationwide in an industry, at the beginning of the analysis period (t-1) exports of the Nationwide in an industry, at the end of the analysis period (t)
t iN = total
(t-1) = total iN
National Share (NS) measures by how much total exports in a state area increased because of growth in the national economy during the period of analysis. For example, all else being equal,
if exports in the Nations economy grew by 10% during the period of analysis, then total exports in the state area would have grown at the same rate. Industry Mix (IM) identifies fast growing or slow growing industrial sectors in a state area based on the national growth rates for individual industry sectors. Thus, a state area with an above-average share of the nation’s high-growth industries would have grown faster than a state area with a high share of low-growth industries. Regional Shift (RS) or competitive effect is perhaps the most important component. It highlights a state area’s leading and lagging industries. Specifically, the competitive effect compares a state area’s growth rate in an industry sector with the growth rate for that same sector at the Nations level. A leading industry is one where that industry’s state area growth rate is greater than its nations growth rate. A lagging industry is one where the industry’s state area growth rate is less than its nations growth rate. And this helps me, how? As an academic exercise, shift-share analysis divides state economic growth into its component parts. Returning to the textile example, a shift-share analysis would show how much of the 2442.96 crores increase in the Andhra Pradesh Textile industry was due to the Indian economy, how much to the national textile industry, and how much to the Andhra Pradesh economy. As a practical matter, shift-share analysis identifies leading and lagging industries. It is this information that, in turn, could help drive business recruitment decisions as well as public investment decisions. In addition, results from this analysis could help structure economic development policy. Where can I get Data to run the Analysis? It’s not that difficult to conduct a shift-share analysis. All you need is an Excel spreadsheet and exports data. By following the calculations as described above, you can determine what the competitive industries are in your state economy refering to a country, metro area, region, other state. The data can be obtained from the various departmental website or CII (confederation of Indian industries) or www.ibef.org etc. Here’s our project We wants to identify which manufacturing industries would most likely benefit from aggressive exports and investment initiatives. question: what are the state’s leading and lagging manufacturing industries? Next determine the method of analysis, time frame, and data availability. In this project we use the shift-share technique.
The data indicates that—over a five year period—2442.96 textile manufacturing exports were created in the state; 418.104crs exports were created in the state’s Transport equipments manufacturing industry; overall, 47999.8413crs manufacturing exports were created in the state. How much of this growth may be attributed to the unique Andhra Pradesh business climate? In other words, since an industry’s local performance is affected by fluctuations in the national business cycle and by its national performance, external forces need to be subtracted. Thus, to identify the local economy’s leading and lagging industries, we apply the shift and share calculations previously described.
Interpreting the Data Analysis
In 2005, nearly 401.277 billion were exported in the state’s manufacturing industries. Five years later, 881.27 billion were exported in the industry. How much of that increase may be attributed to the national economy? 881.27 = 563.58 + 188.57 + 129.11 Actual NS IM RS National Share (NS): Had the state’s manufacturing industry grown at the same rate as the national average, there would have been 31,788.61crs less exports in 2010. So, what explains the gain of 16211.2245crs jobs in the state’s share of national employment? Was there something unique about the industry itself? Industry Mix (IM): There is usually a difference between a particular industry’s growth rate and the national average. The exports data show that, nationally, manufacturing exports increased with overall exports increased. Had Andhra pradesh manufacturing grown at the same rate as the national manufacturing industry, the state would have complex. Since it did not, it is fair to say that Andhra Pradesh provided a better environment for manufacturing between 2005 and 2010. Regional Shift (RS): The difference between the national share and industry mix is the regional shift. The regional shift indicates that local conditions were responsible for the state’s competitive position in manufacturing. The RS column in the data analysis table shows. Top 5 Leading Manufacturing Industries (2005-2010) Information Technology / BPO services Gems and Jewellery industries Textile industries Pharmaceuticals Food Processing Top 4 Lagging Manufacturing Industries (2005 - 2010) Transport equipments Leather Industry Chemical industry and Electronic goods manufacturing industry The results clearly indicate that the Andhra Pradesh manufacturing industry outperformed its national counterpart during the expansionary period, 2005-2010. Based on the identification of leading and lagging industries, this analysis suggests that manufacturing export efforts—at least in good economic times— should be directed at bringing more Information technology/BPO service companies and Textile companies to the state.
Limitations of the Shift-Share Technique
The shift-share technique is only a descriptive tool. It should be used in combination with other analyses to determine a region's economic potential. Shift-share does not account for many factors including the impact of business cycles, identification of actual comparative advantages, and differences caused by levels of industrial detail. A shift-share analysis is a "snap-shot" of a local economy at two points in time. Thus, the analysis may not offer a clear picture of the local and national economies since the results are sensitive to the time period chosen. On the other hand, the shift-share technique provides a simple, straightforward approach to separating out the national and industrial contributions from local growth. It is also useful for targeting industries that might offer significant future growth opportunities.
http://www.texmin.nic.in/annualrep/AR05-06-10.pdf .............textile 2005 http://www.hitex.co.in/ap_biz_textiles.pdf …….Textile 2010 AP http://www.ap-apparelpark.com/Textile_policy_goms_300.pdf ………textile 2005 AP http://www.ibef.org ……………………….. textile 2010, IT/BPO, Pharma, Food processing—2010 http://www.dnaindia.com/money/report_india-s-it-bpo-exports-likely-to-touch-60-bn-by2010_1001850 ........................IT/BPO - 2005 http://www.apinvest.co.in/inside/ict_policy_2010_15.pdf ……………IT AP 2010 http://www.dnb.co.in/SMEPune/Food%20Processing.asp …………2005 http://www.leatherindia.org/industry_2010.asp ………..leather goods 2010 and 2005 http://www.gjepc.org/pdf/Current_updates/Export_Dec_2010_Summary.pdf ……….gems jewel http://www.gjepc.org/pdf/Current_updates/year-2006_Exp_Dets.pdf ……………..gems jewel http://www.indiacatalog.com/states/andhra_pradesh/major_industries.html ………………Pharma AP http://commerce.nic.in/publications/anualreport_chapter2-2009-10.asp ………electronic goods