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Policy, Economic Federalism & Product Market Entry: The Indian Experience

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Listed:
  • Sumon Kumar Bhaumik

    ()

  • Shubhashis Gangopadhyay

    ()

  • Shagun Krishnan

    ()

Abstract

Productivity growth has long been associated with, among others, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm’s ability to enter a product market than strategic positions adopted by the incumbent firms. The authors examine this proposition in the context of India where the industrial policies of the eighties and the nineties are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In the analysis, the authors also take into consideration the possibility that the greater economic federalism associated with the reforms of the nineties may have affected the distribution of industrial units across states after 1991. The paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

Suggested Citation

  • Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2007. "Policy, Economic Federalism & Product Market Entry: The Indian Experience," Working Papers id:800, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:800
    Note: Institutional Papers
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Bhaumik, Sumon Kumar & Piesse, Jenifer, 2008. "Does lending behaviour of banks in emerging economies vary by ownership? Evidence from the Indian banking sector," Economic Systems, Elsevier, vol. 32(2), pages 177-196, June.
    4. repec:hrv:faseco:30747190 is not listed on IDEAS
    5. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, World Bank Group, vol. 3(1), pages 27-57, January.
    6. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    7. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2004. "Business environment and firm entry : Evidence from international data," Policy Research Working Paper Series 3232, The World Bank.
    8. Bilsen, Valentijn & Konings, Jozef, 1998. "Job Creation, Job Destruction, and Growth of Newly Established, Privatized, and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary, and Romania," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 429-445, September.
    9. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
    10. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Entry; Institutions; Regulations; India; Textiles; Electrical Machinery; Reforms;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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