IDEAS home Printed from https://ideas.repec.org//p/cep/stidep/45.html
   My bibliography  Save this paper

The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India

Author

Listed:
  • Philippe Aghion
  • Robin Burgess
  • Stephen Redding
  • F Zilibotti

Abstract

This paper investigates whether the effects, on registered manufacturing out-put,employment, entry and investment, of dismantling the 'license raj' - a system of centralcontrols regulating entry and production activity in this sector - vary across Indian stateswith different labor market regulations. The effects are found to be unequal depending onthe institutional environment in which industries are embedded. In particular, followingdelicensing, industries located in states with pro-employer labor market institutions grewmore quickly than those in pro-worker environments. Our results emphasize how localinstitutions matter for whether industry in a region benefits or is harmed by thenationwide delicensing reform.

Suggested Citation

  • Philippe Aghion & Robin Burgess & Stephen Redding & F Zilibotti, 2005. "The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stidep:45
    as

    Download full text from publisher

    File URL: https://sticerd.lse.ac.uk/dps/de/DEDPS45.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ann Harrison, 2007. "Globalization and Poverty," NBER Books, National Bureau of Economic Research, Inc, number harr06-1, March.
    2. Gordon H. Hanson, 2007. "Globalization, Labor Income, and Poverty in Mexico," NBER Chapters, in: Globalization and Poverty, pages 417-456, National Bureau of Economic Research, Inc.
    3. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    4. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 1-37.
    5. Caballero, Ricardo J. & Cowan, Kevin N. & Engel, Eduardo M.R.A. & Micco, Alejandro, 2013. "Effective labor regulation and microeconomic flexibility," Journal of Development Economics, Elsevier, vol. 101(C), pages 92-104.
    6. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April.
    7. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    8. Hay, Donald A, 2001. "The Post-1990 Brazilian Trade Liberalisation and the Performance of Large Manufacturing Firms: Productivity, Market Share and Profits," Economic Journal, Royal Economic Society, vol. 111(473), pages 620-641, July.
    9. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 245-276.
    10. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    11. Rama, Martin, 1997. "Organized Labor and the Political Economy of Product Market Distortions," The World Bank Economic Review, World Bank, vol. 11(2), pages 327-355, May.
    12. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    13. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    14. Rama, Martin & Tabellini, Guido, 1995. "Endogenous distortions in product and labor markets," Policy Research Working Paper Series 1413, The World Bank.
    15. Sanyal, Paroma & Menon, Nidhiya, 2005. "Labor Disputes and the Economics of Firm Geography: A Study of Domestic Investment in India," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 825-854, July.
    16. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
    17. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November.
    18. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    19. Krueger, Anne O., 1995. "Policy lessons from development experience since the Second World War," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 40, pages 2497-2550, Elsevier.
    20. Marianne Bertrand & Francis Kramarz, 2002. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1369-1413.
    21. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "The Macroeconomics of Specificity," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 724-767, August.
    22. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    23. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    24. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September.
    25. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    26. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    27. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    28. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August.
    29. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
    30. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    31. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    32. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    33. Fallon, Peter R. & Lucas, Robert E. B., 1993. "Job security regulations and the dynamic demand for industrial labor in India and Zimbabwe," Journal of Development Economics, Elsevier, vol. 40(2), pages 241-275, April.
    34. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    35. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages 22-49, February.
    36. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    37. Joshi, Vijay & Little, I. M. D, 1996. "India's Economic Reforms, 1991-2001," OUP Catalogue, Oxford University Press, number 9780198290780, Decembrie.
    38. repec:rus:hseeco:122439 is not listed on IDEAS
    39. Francisco Rodríguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338, National Bureau of Economic Research, Inc.
    40. Marc-Andreas Muendler, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," CESifo Working Paper Series 1148, CESifo.
    41. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    42. Chang-Tai Hsieh & Keong T. Woo, 2005. "The Impact of Outsourcing to China on Hong Kong's Labor Market," American Economic Review, American Economic Association, vol. 95(5), pages 1673-1687, December.
    43. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
    44. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    2. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
    3. Steven Bond‐Smith, 2022. "Discretely innovating: The effect of limited market contestability on innovation and growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(3), pages 301-327, July.
    4. Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
    5. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    6. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
    7. Iacovone, Leonardo, 2012. "The better you are the stronger it makes you: Evidence on the asymmetric impact of liberalization," Journal of Development Economics, Elsevier, vol. 99(2), pages 474-485.
    8. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
    9. Laajaj, Rachid & Eslava, Marcela & Kinda, Tidiane, 2023. "The costs of bureaucracy and corruption at customs: Evidence from the computerization of imports in Colombia," Journal of Public Economics, Elsevier, vol. 225(C).
    10. Devashish Mitra & Beyza Ural, 2009. "Indian manufacturing: A slow sector in a rapidly growing economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 205-205.
    11. Ghani,Syed Ejaz & Grover,Arti & Kerr,Sari & Kerr,William Robert, 2016. "Will market competition trump gender discrimination in India ?," Policy Research Working Paper Series 7814, The World Bank.
    12. Olivier Cadot & Céline Carrère & Vanessa Strauss-Kahn, 2013. "Trade Diversification, Income, And Growth: What Do We Know?," Journal of Economic Surveys, Wiley Blackwell, vol. 27(4), pages 790-812, September.
    13. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
    14. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    15. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
    16. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," Harvard Business School Working Papers 10-030, Harvard Business School.
    17. Mary Amiti & Amit K. Khandelwal, 2013. "Import Competition and Quality Upgrading," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 476-490, May.
    18. Schiantarelli, Fabio, 2005. "Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence," IZA Discussion Papers 1791, Institute of Labor Economics (IZA).
    19. Ms. Prachi Mishra & Mr. Utsav Kumar, 2005. "Trade Liberalization and Wage Inequality: Evidence From India," IMF Working Papers 2005/020, International Monetary Fund.
    20. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1042-1049, November.

    More about this item

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:stidep:45. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://sticerd.lse.ac.uk/_new/publications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.