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Policy, Economic Federalism & Product Market Entry: The Indian Experience

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  • Sumon Kumar Bhaumik
  • Shubhashis Gangopadhyay

    ()

  • Shagun Krishnan

    ()

Abstract

Productivity growth has long been associated with, among others, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm’s ability to enter a product market than strategic positions adopted by the incumbent firms. The authors examine this proposition in the context of India where the industrial policies of the eighties and the nineties are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In the analysis, the authors also take into consideration the possibility that the greater economic federalism associated with the reforms of the nineties may have affected the distribution of industrial units across states after 1991. The paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

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Paper provided by eSocialSciences in its series Working Papers with number id:800.

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Date of creation: Jan 2007
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Handle: RePEc:ess:wpaper:id:800

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Keywords: Entry; Institutions; Regulations; India; Textiles; Electrical Machinery; Reforms;

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  1. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February.
  2. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," NBER Working Papers 10376, National Bureau of Economic Research, Inc.
  3. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
  4. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
  5. Bhaumik, Sumon Kumar & Piesse, Jenifer, 2008. "Does lending behaviour of banks in emerging economies vary by ownership? Evidence from the Indian banking sector," Economic Systems, Elsevier, vol. 32(2), pages 177-196, June.
  6. Leora Klapper & Luc Laeven & Raghuram Rajan, 2004. "Business Environment and Firm Entry: Evidence from International Data," NBER Working Papers 10380, National Bureau of Economic Research, Inc.
  7. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge," IMF Working Papers 04/77, International Monetary Fund.
  8. Valentijn Bilsen & Jozef Konings, 1997. "Job Creation, Job Destruction and Growth of Newly Established, Privatized and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary and Romania," William Davidson Institute Working Papers Series 106, William Davidson Institute at the University of Michigan.
  9. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  10. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, World Bank Group, vol. 3(1), pages 27-57, January.
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