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Welfare effects of industrial policies: Theory and evidence from India's de-reservation policy

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  • Gimenez-Perales, Victor
  • Mulyukova, Alina

Abstract

We study how industrial policies affect welfare depending on firms' management practices. In a model of multi-product firms, we show that firms with better management practices are less adversely affected by an industrial policy that fosters market entry and competition. This result follows from firms with better management practices specializing in fewer products with lower marginal costs. Evidence from India's de-reservation policy supports these predictions. Our simulations estimate a 0.29% welfare gain in India from the policy. The same policy could increase welfare by 0.39% in an environment with better management practices, such as those in the US.

Suggested Citation

  • Gimenez-Perales, Victor & Mulyukova, Alina, 2026. "Welfare effects of industrial policies: Theory and evidence from India's de-reservation policy," Kiel Working Papers 2299, Kiel Institute for the World Economy, revised 2026.
    • Handle: RePEc:zbw:ifwkwp:325492
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F10 - International Economics - - Trade - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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