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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).
(t-1)
oN = 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).
t
iN = total exports of the Nationwide in an industry, at the beginning of the analysis period (t-1)
(t-1)
iN = total exports of the Nationwide in an industry, at the end of the analysis period (t)
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.

References:
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-by-
2010_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

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