A BEJEAP Advances article.

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.

Submitted: December 11, 2008 · Accepted: August 4, 2009 · Published: September 23, 2009

Recommended Citation

Sivadasan, Jagadeesh (2009) "Barriers to Competition and Productivity: Evidence from India," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Advances), Article 42.
DOI: 10.2202/1935-1682.2161
Available at: http://www.bepress.com/bejeap/vol9/iss1/art42