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Services Reform and Manufacturing Performance: Evidence from India

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

Abstract

Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on goods trade liberalization and industrial de-licensing. We demonstrate the powerful contribution of a neglected factor: India’s policy reforms in services. The link between these reforms and the productivity of manufacturing firms is examined using panel data for about 4,000 Indian firms for the period 1993-2005. We 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.

Suggested Citation

  • Arnold, Jens & Javorcik, Beata & Lipscomb, Molly & Mattoo, Aaditya, 2010. "Services Reform and Manufacturing Performance: Evidence from India," CEPR Discussion Papers 8011, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8011
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign direct investment; liberalization; productivity; services reform;

    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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