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Barriers to Competition and Productivity: Evidence from India

Listed author(s):
  • Sivadasan Jagadeesh

    ()

    (University of Michigan - Ann Arbor)

A number of economic theories suggest that barriers to competition lead to higher levels of inefficiency among incumbents. In this paper, we use a detailed plant-level dataset to study the impact on productivity of two reforms (initiated in 1991) aimed at increasing product market competition in India -- liberalization of foreign direct investment (FDI) and reduction in tariff rates. First, we examine the effect of the liberalization policies on mean plant-level productivity in the targeted industries. We find significant increases in productivity in the FDI and tariff-liberalized industries, particularly in the longer term (1993-94). We check and find our results robust to a range of robustness tests. Next, we examine the role of intensive (within-plant productivity growth) and extensive (reallocation from less to more productive plants) margins in the post-reform productivity improvement, and find a predominant role for the former. Finally, we assess potential channels for within-firm productivity improvement. Consistent with a role for price competition, we find evidence of greater declines in output prices as well as concentration measures in the liberalized sectors.

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File URL: https://www.degruyter.com/view/j/bejeap.2009.9.1/bejeap.2009.9.1.2161/bejeap.2009.9.1.2161.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (September)
Pages: 1-66

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:42
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  1. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
  2. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
  3. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
  4. Tor Jakob Klette & Zvi Griliches, 1992. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous," NBER Working Papers 4026, National Bureau of Economic Research, Inc.
  5. Muendler, Marc-Andreas, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," University of California at San Diego, Economics Working Paper Series qt6m96c2r7, Department of Economics, UC San Diego.
  6. Pravin Krishna & Devashish Mitra, 1996. "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  7. Kira Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," NBER Working Papers 11001, National Bureau of Economic Research, Inc.
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