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Services reform and manufacturing performance : evidence from India

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

The growth of India's manufacturing sector since 1991 has been attributed mostly to trade liberalization and more permissive industrial licensing. This paper demonstrates the significant impact of a neglected factor: India's policy reforms in services. The authors examine the link between those reforms and the productivity of manufacturing firms using panel data for about 4,000 Indian firms from1993 to 2005. They 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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5948.

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Date of creation: 01 Jan 2012
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Handle: RePEc:wbk:wbrwps:5948
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  1. Barry Bosworth & Susan M. Collins & Arvind Virmani, 2007. "Sources of Growth in the Indian Economy," NBER Working Papers 12901, National Bureau of Economic Research, Inc.
  2. Pete Klenow & Gunjan Sharma & Albert Bollard, 2011. "India's Mysterious Manufacturing Miracle," 2011 Meeting Papers 1176, Society for Economic Dynamics.
  3. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  4. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
  5. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  6. 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.
  7. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2011. "Learning Versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth?," NBER Working Papers 16733, National Bureau of Economic Research, Inc.
  8. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
  9. Pinelopi K. Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2008. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," NBER Working Papers 14416, National Bureau of Economic Research, Inc.
  10. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity; The Case of India," IMF Working Papers 04/28, International Monetary Fund.
  11. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
  12. Pinelopi Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2009. "Trade Liberalization and New Imported Inputs," American Economic Review, American Economic Association, vol. 99(2), pages 494-500, May.
  13. 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.
  14. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
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