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Product Market Regulation and Economic Performance across Indian States

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  • Paul Conway
  • Richard Herd
  • Thomas Chalaux

Abstract

This paper uses the OECD's indicators of product market regulation to assess the extent to which the regulatory environment affects economic performance across Indian states. The degree to which product market regulation is supportive of competition is found to vary considerably across states. Furthermore, regression results indicate that these differences in regulation have a significant impact on both labour and total factor productivity. States in which the regulatory environment restricts competition have lower productivity growth in comparison to states in which regulation is more supportive of competition. Relatively liberal states are also found to attract more foreign investment and have a larger share of employment in the organised sector in comparison to states with a more restrictive regulatory environment. State governments that have enacted a relatively liberal regulatory framework have also been more successful at infrastructure provision. Ongoing reform of product market regulation is necessary to improve productivity growth further and ensure that the benefits of reform are distributed more widely across the country. This working Paper relates to the 2007 Economic Survey of India (www.oecd.org/eco/surveys/india). Réglementation des marchés de produits et performances économiques dans les États de l'Union indienne Nous utilisons dans ce document les indicateurs de réglementation des marchés de produits (RMP) de l'OCDE pour évaluer les répercussions de l'environnement réglementaire sur les performances économiques des États de l'Union indienne. Nous parvenons à la conclusion que la mesure dans laquelle la réglementation des marchés de produits favorise la concurrence varie considérablement suivant les États. En outre, les résultats obtenus par analyse de régression indiquent que ces différences de réglementation ont un impact sensible tant sur la productivité de la main-d'oeuvre que sur la productivité totale des facteurs. Les États où l'environnement réglementaire restreint la concurrence enregistrent des gains de productivité plus faibles que ceux dans lesquels la réglementation est plus propice au libre jeu des forces du marché. Nous montrons également que les États relativement libéraux attirent davantage l'investissement étranger, qu'ils ont de meilleures infrastructures, et que le secteur organisé y représente une proportion plus importante de l'emploi que dans les États ayant un cadre réglementaire plus restrictif. Les États qui ont décrété un système réglementaire relativement libéral sont aussi ceux qui ont connu le plus de réussite dans l'approvisionnement en infrastructure. Les autorités doivent aller plus loin dans la réforme de la réglementation des marchés de produits pour renforcer encore la croissance de la productivité, et veiller à ce que les fruits des réformes soient plus largement distribués dans l'ensemble du pays. Ce document de travail se rapporte à l'Étude économique de l'Inde 2007 (www.oecd.org/eco/etudes/inde).

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File URL: http://dx.doi.org/10.1787/243226766782
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 600.

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Date of creation: 28 Mar 2008
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Handle: RePEc:oec:ecoaaa:600-en

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Related research

Keywords: productivity convergence; institutions and growth; institutions et croissance; convergence de la productivité;

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Cited by:
  1. Nitin Gupta, 2012. "The Evolution of Manufacturing Efficiency: Evidence from Indian States," ASARC Working Papers 2012-13, The Australian National University, Australia South Asia Research Centre.
  2. Maria Bas & Antoine Berthou, 2012. "The Unequal Effects of Financial Development on Firms' Growth in India," Working Papers 2012-22, CEPII research center.
  3. Nitin Gupta, 2011. "The Differential Effects of Financial Development on India's Industrial Performance," ASARC Working Papers 2011-12, The Australian National University, Australia South Asia Research Centre.
  4. Gupta, Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing," MPRA Paper 13496, University Library of Munich, Germany.

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