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The Unequal Effect of India's Industrial Liberalization on Firms’ Decision to Innovate: Do Business Conditions Matter?

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  • Maria Bas
  • Caroline Paunov

Abstract

Product†market competition can boost industry growth if firms invest more in innovation. Using a natural policy experiment, the removal of India's License Raj, we show that firms in liberalized industries were 9% more likely to invest in R&D than firms in non†liberalized industries. However, the impacts were not the same across firms of different size. After the reforms, firms in the top quartile were 23% more likely to invest in R&D than those in the lowest size quartile. Both productivity differences across firms and the heterogeneous impacts of business conditions on firms explain unequal effects of India's industrial liberalization reform.

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  • Maria Bas & Caroline Paunov, 2018. "The Unequal Effect of India's Industrial Liberalization on Firms’ Decision to Innovate: Do Business Conditions Matter?," Journal of Industrial Economics, Wiley Blackwell, vol. 66(1), pages 205-238, March.
  • Handle: RePEc:bla:jindec:v:66:y:2018:i:1:p:205-238
    DOI: 10.1111/joie.12163
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    Cited by:

    1. Luca Grilli & Boris Mrkajic & Emanuele Giraudo, 2023. "Industrial policy, innovative entrepreneurship, and the human capital of founders," Small Business Economics, Springer, vol. 60(2), pages 707-728, February.
    2. Chen, Yenn-Ru & Jiang, Xiaoquan & Weng, Chia-Hsiang, 2020. "Can government industrial policy enhance corporate bidding? The evidence of China," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    3. Bas, Maria, 2020. "The effect of communication and energy services reform on manufacturing firms’ innovation," Journal of Comparative Economics, Elsevier, vol. 48(2), pages 339-362.

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