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Learning Versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth?

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  • Ann E. Harrison
  • Leslie A. Martin
  • Shanthi Nataraj

Abstract

The new trade theory emphasizes the role of market-share reallocations across firms ("stealing") in driving productivity growth, while the older literature focused on average productivity improvements ("learning"). We use comprehensive, firm-level data from India's organized manufacturing sector to show that market-share reallocations did play an important role in aggregate productivity gains immediately following the start of India's trade reforms in 1991. However, aggregate productivity gains during the overall 20-year period from 1985 to 2004 were driven largely by improvements in average productivity. By exploiting the variation in reforms across industries, we document that the average productivity increases can be attributed to India's trade liberalization and FDI reforms. Finally, we construct a panel dataset that allows us to track firms during this time period; our results suggest that while within-firm productivity improvements were important, much of the increase in average productivity also occured because of firm entry and exit.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16733.

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Date of creation: Jan 2011
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Publication status: published as Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 27(2), pages 202-228.
Handle: RePEc:nbr:nberwo:16733
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Find related papers by JEL classification:
  • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  1. Aw, Bee Yan & Chen, Xiaomin & Roberts, Mark J., 2001. "Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing," Journal of Development Economics, Elsevier, vol. 66(1), pages 51-86, October.
  2. Antoine Berthou & Lionel Fontagné, 2013. "How do Multiproduct Exporters React to a Change in Trade Costs?," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00975562, HAL.
  3. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
  4. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo Group Munich.
  5. Eaton, Jonathan & Kortum, Samuel S & Kramarz, Francis, 2009. "An Anatomy of International Trade: Evidence from French Firms," CEPR Discussion Papers 7111, C.E.P.R. Discussion Papers.
  6. Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
  7. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  8. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
  9. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
  10. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  11. Sivadasan Jagadeesh, 2009. "Barriers to Competition and Productivity: Evidence from India," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-66, September.
  12. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  13. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
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