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Although many studies consider the
spatial pattern of manufacturing plants in developing
countries, the role of services as a driver of urbanization
and structural transformation is still not well understood.
Using establishment level data from India, this paper helps
narrow this gap by comparing and contrasting the spatial
development of services with that in manufacturing. The
study during the 2001-2010 period suggests that (i) services
are more urbanized than manufacturing and are moving toward
the urban and, by contrast, the organized manufacturing
sector is moving away from urban cores to the rural
periphery; (ii) manufacturing and services activities are
highly correlated in spatial terms and exhibit a high degree
of concentration in just a few states and industries; (iii)
manufacturing in urban districts has a stronger tendency to
locate closer to larger cities relative to services
activity; (iv) infrastructure has a significant effect on
manufacturing output, while human capital matters more for
services activity; and lastly, (v) technology penetration,
measured by the penetration of the Internet, is more
strongly associated with services than manufacturing.
Similar results hold when growth in activity is measured
over the study period rather than levels. Manufacturing and
services do not appear to crowd each other out of local areas.
