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Barriers to Competition and Productivity: Evidence from India

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  • Sivadasan Jagadeesh

    ()
    (University of Michigan - Ann Arbor)

Abstract

A number of economic theories suggest that barriers to competition lead to higher levels of inefficiency among incumbents. In this paper, we use a detailed plant-level dataset to study the impact on productivity of two reforms (initiated in 1991) aimed at increasing product market competition in India -- liberalization of foreign direct investment (FDI) and reduction in tariff rates. First, we examine the effect of the liberalization policies on mean plant-level productivity in the targeted industries. We find significant increases in productivity in the FDI and tariff-liberalized industries, particularly in the longer term (1993-94). We check and find our results robust to a range of robustness tests. Next, we examine the role of intensive (within-plant productivity growth) and extensive (reallocation from less to more productive plants) margins in the post-reform productivity improvement, and find a predominant role for the former. Finally, we assess potential channels for within-firm productivity improvement. Consistent with a role for price competition, we find evidence of greater declines in output prices as well as concentration measures in the liberalized sectors.

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File URL: http://www.degruyter.com/view/j/bejeap.2009.9.1/bejeap.2009.9.1.2161/bejeap.2009.9.1.2161.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (September)
Pages: 1-66

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:42

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