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Entry Liberalization and Inequality in Industrial Performance

Author

Listed:
  • Philippe Aghion

    (Harvard University,)

  • Robin Burgess

    (London School of Economics,)

  • Stephen Redding

    (London School of Economics,)

  • Fabrizio Zilibotti

    (Institute for International Economic Studies,)

Abstract

Industrial delicensing, which began in 1985 in India marked a discrete break from a past of centrally planned industrial development. Similar liberalization episodes are taking place across the globe. We develop a simple Schumpeterian growth model to understand how firms respond to the entry threat imposed by liberalization. The model emphasizes that firm responses, even within the same industrial sector, are likely to be heterogeneous leading to an increase in within industry inequality. Technologically advanced firms and those located in regions with pro-business institutions are more likely to respond to the threat of entry by investing in new technologies and production processes. Empirical analysis using a panel of three-digit state industry data from India for the period 1980-1997 confirms that delicensing led to an increase in within industry inequality in industrial performance. (JEL: F14, 012, 031) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • 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.
    • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:291-302
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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