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1. IntroductionDiscussions on economic growth and socioeconomic development are closely interlinked. One aspect of this debate that appears in much of the theoretical and empirical literature is the idea that new firms create employment opportunities and growth, followed by socioeconomic development. There is, however, little empirical evidence on the actual socioeconomic impact of new firms on economic growth, except for macroeconomic analyses that look at how the overall level of industrial activity affects overall growth rates.There are many problems with this approach. First, when one looks at country-level industrial activity and economic growth, one ignores the differences across regions. It is very possible that industrial activity has a significantly different impact in one region compared to another, both because of the characteristics of the region and the characteristics of the industries located there. Second, it is very difficult to determine if industrial activity causes development, is caused by development, or (as is most likely) if both cause each other. Higher industrial output in a region can cause income levels to rise, which in turn increases enrollment rates, providing more skilled labor for industries and consequently attracting new industries to enter the region. Finally, macroeconomic analyses tend to focus on overall industrial output as opposed to the nature of the firms producing this output. So, economists have looked at the relationship between the value of industrial output and economic growth, but ignored the types of firms that produce this output.In this paper, we use a unique dataset for Punjab to examine how the entry of different types of firms in a district over time affects socioeconomic outcomes. In particular, we see how firm entry affects district-level economic outcomes such as industrial employment, primary school enrollment rates, and the number of new hospitals. We take the analysis a step further by disentangling the impact of different types of firms (small, medium, and large) on these economic outcomes. We also look at how the entry of firms that produce export goods affects these outcomes compared to those producing goods for the local market. The premise here is that the entry of different types of firms has differing impacts on development.Although we employ a standard empirical approach as used in the literature, one has to be cautious at the outset in drawing conclusions about economic causality. So, if we find that the entry of large industrial firms has an impact on primary enrollment rates across districts in Punjab, we cannot say with absolute certainty that this is the only factor that has caused primary enrollment to rise. There could be a host of other endogenous and exogenous factors affecting both simultaneously, even if we prove that primary enrollment rates are positively correlated with the entry of large firms across districts. That said, our analysis adds to the discussion on the socioeconomic impact of industrial activity in the Pakistani context.The setup of this paper is as follows. Section 2 looks briefly at the geographic distribution of employment and firms by size in Punjab. Section 3 reviews the literature on measuring the impact of new firm entry on employment. Section 4 presents the methodology followed. Section 5 gives the results of the empirical analysis and Section 6 discusses these results.2. Geographic Distribution of Industrial Employment and Firms by Size in PunjabWe begin by looking at maps that explain the regional breakdown of industrial employment and firm distribution by size across districts of Punjab. For these maps, we use the Government of Punjab's Directory of Industries (DOI) for 2010, 2006, and 2002; this is a firm-level dataset that covers more than 18,000 manufacturing firms.The district-level breakdown of industrial employment is given in Figure 1 as a ratio of total employment in the province for 2010, 2006, and 2004. … |
