Barriers to Competition and Productivity: Evidence from India

Ross School of Business Paper No. 1062

The B.E. Journal of Economic Analysis & Policy, Vol. 9, No. 1, (Advances), Article 42

Posted: 4 Jan 2007 Last revised: 22 Jun 2010

See all articles by Jagadeesh Sivadasan

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Survey Research Center

Date Written: September 1, 2009

Abstract

A number of economic theories suggest that barriers to competition lead to higher levels of inefficiency among incumbents. In this paper, we use a detailed plant-level dataset to study the impact on productivity of two reforms (initiated in 1991) aimed at increasing product market competition in India -- liberalization of foreign direct investment (FDI) and reduction in tariff rates. First, we examine the effect of the liberalization policies on mean plant-level productivity in the targeted industries. We find significant increases in productivity in the FDI and tariff-liberalized industries, particularly in the longer term (1993-94). We check and find our results robust to a range of robustness tests. Next, we examine the role of intensive (within-plant productivity growth) and extensive (reallocation from less to more productive plants) margins in the post-reform productivity improvement, and find a predominant role for the former. Finally, we assess potential channels for within-firm productivity improvement. Consistent with a role for price competition, we find evidence of greater declines in output prices as well as concentration measures in the liberalized sectors

Keywords: Foreign Direct Investment, Trade Liberalization, Productivity, Reallocation, Industrial Policy

JEL Classification: F14, F13, L52, O25

Suggested Citation

Sivadasan, Jagadeesh, Barriers to Competition and Productivity: Evidence from India (September 1, 2009). Ross School of Business Paper No. 1062, The B.E. Journal of Economic Analysis & Policy, Vol. 9, No. 1, (Advances), Article 42, Available at SSRN: https://ssrn.com/abstract=954940

Jagadeesh Sivadasan (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor - Survey Research Center ( email )

Ann Arbor, MI
United States

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