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How much does industry matter in an emerging market economy?

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  • Arnab Bhattacharjee
  • Sumit K. Majumdar

Abstract

Theories of firm profitability make different predictions about the relative importance of firm, industry and time specific factors. We assess, empirically, the relevance of these effects over a sixteen year period in India, as a regime of control and regulation, pre 1985, gave way to partial liberalisation between 1985 and 1991 and to more decisive liberalisation after 1991. We find that firm effects are important throughout, when rent seeking opportunities proliferated, as well as when competitive forces were enhanced by institutional change. In contrast, industry effects significantly increased after liberalisation, suggesting that industry structure matters more within competitive markets. These findings help understand the relevance of different models over different stages of liberalisation, and have important implications for both theory and policy.

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Bibliographic Info

Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 256.

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Length: 36 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:dun:dpaper:256

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Keywords: Firm profitability; Market structure; Firm and industry effects; Time effects; Institutional change; Transition economy;

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