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Services Reform and Manufacturing Performance: Evidence from India

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  • Jens Matthias Arnold
  • Beata Javorcik
  • Molly Lipscomb
  • Aaditya Mattoo

Abstract

The growth of India's manufacturing sector since 1991 has been attributed mostly to trade liberalization and more permissive industrial licensing. This paper demonstrates the significant impact of a neglected factor: India's policy reforms in services. The authors examine the link between those reforms and the productivity of manufacturing firms using panel data for about 4,000 Indian firms from1993 to 2005. They find that banking, telecommunications, insurance and transport reforms all had significant, positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally-owned manufacturing firms, but the effects on foreign firms tended to be stronger. A one-standard-deviation increase in the aggregate index of services liberalization resulted in a productivity increase of 11.7 percent for domestic firms and 13.2 percent for foreign enterprises.
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Suggested Citation

  • Jens Matthias Arnold & Beata Javorcik & Molly Lipscomb & Aaditya Mattoo, 2016. "Services Reform and Manufacturing Performance: Evidence from India," Economic Journal, Royal Economic Society, vol. 126(590), pages 1-39, February.
    • Handle: RePEc:wly:econjl:v:126:y:2016:i:590:p:1-39
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    File URL: http://hdl.handle.net/10.1111/ecoj.2016.126.issue-590
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F2 - International Economics - - International Factor Movements and International Business
    • L8 - Industrial Organization - - Industry Studies: Services

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