Productivity Consequences of Product Market Liberalization: Micro-evidence from Indian Manufacturing Sector Reforms
Sivadasan, Jagadeesh
2006-10
Subjects
Foreign Direct Investment Trade Liberalization Productivity Reallocation Industrial Policy
Abstract
We use a new plant-level dataset to study the effect of two reforms 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 liberalized industries. We find a 23% increase in productivity level following the FDI liberalization and a 33% increase following tariff liberalization (comparing mean value added log productivity levels in 1994-95 to the pre-reform 1987-90 period). We check the robustness of these results to: (a) using alternative measures of productivity; (b) using alternative definitions of the liberalization variable; and (c) inclusion of controls to address possible bias from the selection of industries into liberalization regimes. The tariff liberalization effect is generally robust; the FDI liberalization effect is 14%-16% when controlling for non-random selection. Next, we examine aggregate productivity growth in liberalized industries; we find a 16% (15.6%) increase following FDI (tariff) liberalization. This increase appears to be driven by improvement in intra-plant productivity growth, with a small role for re-allocation. Finally, we examine who benefited from the productivity gains; we find that the major beneficiaries were wholesale consumers (in the form of relatively lower wholesale output prices in the liberalized sectors).Other Identifiers
1062
Other Identifiers
1062
Subject Classification
Business Economics
Types
Working Paper
Metadata
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