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Services Reform and Manufacturing Performance: Evidence from India

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  • Arnold, Jens
  • Javorcik, Beata
  • Lipscomb, Molly
  • Mattoo, Aaditya

Abstract

Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on goods trade liberalization and industrial de-licensing. We demonstrate the powerful contribution of a neglected factor: India’s policy reforms in services. The link between these reforms and the productivity of manufacturing firms is examined using panel data for about 4,000 Indian firms for the period 1993-2005. We find that banking, telecommunications, insurance and transport reforms all had significant positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally-owned manufacturing firms, but the effects on foreign firms tended to be stronger. A one-standard-deviation increase in the aggregate index of services liberalization resulted in a productivity increase of 11.7 percent for domestic firms and 13.2 percent for foreign enterprises.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8011.

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Date of creation: Sep 2010
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Handle: RePEc:cpr:ceprdp:8011

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Keywords: foreign direct investment; liberalization; productivity; services reform;

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  1. Barry Bosworth & Susan M. Collins & Arvind Virmani, 2006. "Sources of Growth in the Indian Economy," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 3(1), pages 1-69.
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