IDEAS home Printed from https://ideas.repec.org/p/rza/wpaper/225.html
   My bibliography  Save this paper

The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing

Author

Listed:
  • Asha Sundaram

Abstract

This paper looks at the impact of trade liberalization on output, factor intensity and labor productivity of micro enterprises with differential access to banks. It uses Indian data on micro enterprises employing fewer than ten workers in the manufacturing sector and finds that trade liberalization, measured by a fall in the tariff, is associated with higher enterprise output, capital-labor ratios and labor productivity in districts with a larger number of bank branches per capita. Evidence is consistent with strong complementarities between trade liberalization effects and better access to credit and greater economic dynamism due to greater bank presence in the enterprise’s location. In addition, the research points to greater likelihood of outsourcing of production activity to micro enterprises in more open industries. The study highlights the role of credit market institutions, labor regulation and linkages between micro enterprises and large firms in determining the effects of trade liberalization on developing country manufacturing.

Suggested Citation

  • Asha Sundaram, 2011. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Working Papers 225, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:225
    as

    Download full text from publisher

    File URL: http://www.econrsa.org/node/248
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
    2. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1042-1049, November.
    3. 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.
    4. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
    5. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    6. 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.
    7. Marjit, Sugata & Maiti, Dibyendu S., 2005. "Globalization, Reform and the Informal Sector," WIDER Working Paper Series 012, World Institute for Development Economic Research (UNU-WIDER).
    8. Harrison, Ann & Rodríguez-Clare, Andrés, 2010. "Trade, Foreign Investment, and Industrial Policy for Developing Countries," Handbook of Development Economics, Elsevier.
    9. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
    10. 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.
    11. 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.
    12. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
    13. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    14. Huang,Yasheng, 2008. "Capitalism with Chinese Characteristics," Cambridge Books, Cambridge University Press, number 9780521898102.
    15. 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.
    16. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
    17. Akoten, John E & Sawada, Yasuyuki & Otsuka, Keijiro, 2006. "The Determinants of Credit Access and Its Impacts on Micro and Small Enterprises: The Case of Garment Producers in Kenya," Economic Development and Cultural Change, University of Chicago Press, vol. 54(4), pages 927-944, July.
    18. McKenzie, David J & Woodruff, Christopher, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 3-42, October.
    19. Dibyendu Maiti, 2008. "The organisational morphology of rural industries and its dynamics in liberalised India: a study of West Bengal," Cambridge Journal of Economics, Oxford University Press, vol. 32(4), pages 577-591, July.
    20. Lin, Ping & Liu, Zhuomin & Zhang, Yifan, 2009. "Do Chinese domestic firms benefit from FDI inflow?: Evidence of horizontal and vertical spillovers," China Economic Review, Elsevier, vol. 20(4), pages 677-691, December.
    21. Devashish Mitra & Beyza Ural, 2009. "Indian manufacturing: A slow sector in a rapidly growing economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 205-205.
    22. Lisa Daniels, 2003. "Factors that influence the expansion of the microenterprise sector: results from three national surveys in Zimbabwe," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 675-692.
    23. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kuang-Chung Hsu & Shinn-Juh Lin & Yungho Weng, 2015. "Do Labor Unions Hinder or Boost International Outsourcing? Evidence from U.S. Manufacturing," The International Trade Journal, Taylor & Francis Journals, vol. 29(2), pages 142-162, June.
    2. Asha Sundaram & Reshad Ahsan & Devashish Mitra, 2012. "Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions," Working Papers 1116, School of International and Public Affairs, Columbia University, revised Apr 2012.
    3. J.Salcedo Cain & Rana Hasan & Devashish Mitra, 2010. "Trade Liberalization and Poverty Reduction: New Evidence from Indian States," Working Papers 3333, School of International and Public Affairs, Columbia University, revised Nov 2010.

    More about this item

    Keywords

    Trade Reform; Banks; Manufacturing; Informal Firms; Productivity; Outsourcing;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rza:wpaper:225. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Tanton). General contact details of provider: http://edirc.repec.org/data/ersacza.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.