Entry, Competitiveness and Exports: Evidence from Firm Level Data of Indian Manufacturing
AbstractThe industry and trade policy regimes in India have witnessed drastic changes since 1991. The dismantling of the industrial licensing system and thereby allowing free entry to and exit from the industry of firms in 1991 followed by the WTO induced trade liberalization leading to substantial reduction in tariffs and gradual softening of foreign investment regulations, particularly in the context of foreign direct investment since 1995, may have had significant impact on the state of competitiveness in India industries. In this paper an attempt has been made to evaluate the effects of trade and industrial policy changes on domestic competitiveness for select Indian industries during post-liberalization period. Though there exists a pool of empirical literature focusing on the state of competitiveness in India, the link between theoretical models underlying the empirical analysis is not often strong. Moreover, a section of the literature focuses on a combination of firm and industry data for drawing conclusions on firm behavior, which may not reflect the actual scenario. Given this background, the present paper attempts to provide a unified approach to examine the inter-relationships between entry and competitiveness within a consistent oligopolistic market framework. The empirical analysis of the present study, carried out on the basis of firm data for 14 sectors over 1990-2008, indicates that Indian industry have shown considerable changes over the last decade in terms of entry and competitiveness. An overall decline in concentration is witnessed between the two end points, which signify the importance of newer entry in the markets. The Price-Cost Margin however behaves differently for different sectors, which could be explained by the differing level of spillover of technical changes as a result of increased pressure of competition due to liberalization. Demand curve is generally found to be inelastic and declines over the period. The relationship between the size of the firms and their export volume turns out to be significantly positive.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22738.
Date of creation: 15 May 2010
Date of revision:
Competitiveness; entry; industrial liberalization; trade liberalization;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-COM-2010-05-29 (Industrial Competition)
- NEP-CSE-2010-05-29 (Economics of Strategic Management)
- NEP-CWA-2010-05-29 (Central & Western Asia)
- NEP-EFF-2010-05-29 (Efficiency & Productivity)
- NEP-INT-2010-05-29 (International Trade)
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