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

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  • Sumon Bhaumik
  • Shubhasish 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. We 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 procompetition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we 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. Our 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 Bhaumik & Shubhasish Gangopadhyay & Shagun Krishnan, 2006. "Policy, Economic Federalism & Product Market Entry: The Indian Experience," William Davidson Institute Working Papers Series wp843, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2006-843
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Entry; Institutions; Regulations; India; Textiles; Electrical Machinery; Reforms;
    All these keywords.

    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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