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Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector

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Author Info
Sumon Kumar Bhaumik () (Brunel University and IZA Bonn)
Shubhashis Gangopadhyay () (India Development Foundation)
Shagun Krishnan () (India Development Foundation)

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Abstract

It is now stylized that, while the impact of ownership on firm productivity is unclear, product market competition can be expected to have a positive impact on productivity, thereby making entry (or contestability of markets) desirable. Traditional research in the context of entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry. However, following De Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using 3-digit industry level data from India, for the 1984-97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations entry rates during the 1990s were explained largely by state level institutional and legacy factors. We also find evidence to suggest that, in India, entry rates were positively associated with growth in total factor productivity.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2086.

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Length: 47 pages
Date of creation: Apr 2006
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Handle: RePEc:iza:izadps:dp2086

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Related research
Keywords: entry productivity institutions regulations India reforms

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables
O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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