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In with the Big, Out with the Small: Removing Small-Scale Reservations in India

  • Leslie A. Martin
  • Shanthi Nataraj
  • Ann Harrison

An ongoing debate in employment policy is whether promoting small and medium enterprises creates more employment. Do small enterprises generate more employment growth than larger firms? We use the elimination of small-scale industry (SSI) promotion in India to address this question. For 60 years, SSI promotion in India focused on reserving certain products for manufacture by small and medium establishments. We identify the consequences for employment growth, investment, output, productivity, and wages of dismantling India’s SSI reservations. We exploit variation in the timing of de-reservation across products; our identification strategy is also robust to measuring the long-run impact of national SSI policy changes using variation in pre-treatment exposure at the district level, and to conducting placebo tests using products that were never de-reserved. Districts more exposed to de-reservation experienced higher employment and wage growth. The results suggest that promoting employment growth in the Indian case was not achieved via SSI reservation policies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19942.

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Date of creation: Sep 2014
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Handle: RePEc:nbr:nberwo:19942
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  1. Alan Harding & Måns Söderbom & Francis Teal, 2004. "Survival and Success among African Manufacturing Firms," CSAE Working Paper Series 2004-05, Centre for the Study of African Economies, University of Oxford.
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