MSME Growth,

Trade and
Inequality: The
Indian Experience
 Variables Used in the Study

• Inequality: For quantifying inequality we take the ratio of the

monthly per capita expenditure of the lowest 20% of the
population to the monthly per capita expenditure of the entire
state.

• MSME Growth: We take the rate of change of real gross

output as a measure of MSME growth.

• Labour Market Flexibility: Based on the rules and regulations

of each state, we classify the states as pro-employer, pro-
employee and neutral. We would follow the classification from
the paper by Hasan, Gupta and Kumar (2009).
• Connectivity: We use road density as a measure of how well
connected a state is. Road density is the ratio of area of the
state covered by roadways to the total area of the state.

• Financial Credit: We use the ratio of the number of MSMEs

receiving loans to the number of MSMEs applying for loans as a
measure of access to financial credit.

• State Gross Domestic Product (SGDP): It is the monetary value

of all goods and services produced within the domestic
boundary of a state in a particular year. It is used a measure of
economic performance of the state and we use it as a control
variable for our study.

• Trade Protection: We use employment weighted state and

sector specific tariff rates as a measure of trade protection.
 Data Sources

Variables Data Source

Inequality NSSO, Household Consumption
Expenditure Survey
MSME Growth Census of Micro, Small and Medium
Industries
Labour Market Flexibility Hasan, Gupta and Kumar (2009)
Connectivity Ministry of Road Transport and
Highways
Financial Credit Census of Micro, Small and Medium
Industries
SGDP RBI Database
Trade Protection NSSO Employment and Unemployment
Survey, WITS
Methodology