Scale and Scope Externalities in Growth of IT Industries in India: An Agglomeration Perspective

Externalities occur among agglomerated firms. Scale externalities occur between firms in an industry with similar activities. Scope externalities occur when heterogeneous activities are placed in proximity. Combined scale-and-scope externalities exist when the scale of one industry is beneficial to the growth of another collocated industry. We use the agglomeration perspective to explain the growth of IT industries in India. We study growth patterns of four IT industries: computer and peripheral equipment manufacturing, semiconductor and other electronic components manufacturing, software and IT-enabled services. Our analysis suggests the existence of scale, scope and combined scale-and-scope externalities in IT industry growth. We also find that the growth of IT industries has had a significant positive effect on national development