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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. 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.
    2. 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.
    3. 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).

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