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Deregulation, Misallocation, and Size: Evidence from India

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Author Info

  • Laura Alfaro

    ()
    (Harvard Business School, Business, Government and the International Economy Unit)

  • Anusha Chari

    ()
    (Department of Economics University of North Carolina at Chapel Hill)

Abstract

This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm size dynamics and reallocation of resources within industries. Following deregulation, resource misallocation declines and the left-hand tail of the firm size distribution thickens significantly, suggesting increased entry by small firms. However, the dominance and growth of large incumbents remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly non-linear. The reallocation of market shares toward a small number of large firms and a large number of small firms is characterized as the "shrinking middle" in Indian manufacturing. Small- and medium-sized firms may continue to face constraints in their attempts to grow.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 13-056.

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Length: 53 pages
Date of creation: Dec 2012
Date of revision: Feb 2014
Handle: RePEc:hbs:wpaper:13-056

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Cited by:
  1. Christine Greenhalgh, 2013. "Science, Technology, Innovation and IP in India - New Directions and Prospects," Economics Series Working Papers 660, University of Oxford, Department of Economics.

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