This paper exploits India's rapid, comprehensive, and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms.

/pdf/trade-liberalization-and-firm-productivity-the-case-of-india-1s1vzh4q1s.pdf

Trade Liberalization and Firm Productivity: The Case of India

Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics The rapid and comprehensive tariff reductions--part of an IMF-supported adjustment program with India in 1991--allow us to establish a causal link between variations in inter-industry and inter-temporal tariffs and consistently estimated firm productivity Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1949292_code1671431.pdf?abstractid=1949292&mirid=1

This paper examines how prices, markups and marginal costs respond to trade liberalizaƟon. We develop a framework to esƟmate markups from producƟon data with mulƟ-product firms. This approach does not require assumpƟons on the market structure or demand curves faced by firms, nor assumpƟons on how firms allocate their inputs across products. We exploit quanƟty and price informaƟon to disentangle markups from quanƟty-based producƟvity, and then compute marginal costs by dividing observed prices by the esƟmated markups. We use India’s trade liberalizaƟon episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalizaƟon lowers factory-gate prices and that output tariff declines have the expected pro-compeƟƟve effects. However, the price declines are small relaƟve to the declines in marginal costs, which fall predominantly because of the input tariff liberalizaƟon. The reason is that firms offset their reducƟons in marginal costs by raising markups. Our results demonstrate substanƟal heterogeneity and variability in markups across firms and Ɵme and suggest that producers benefited relaƟve to consumers, at least immediately aŌer the reforms. Long-term gains to consumers may be higher to the extent that higher firm profits lead to new product introducƟons and growth. Indeed, firms with larger increases in markups had a higher propensity to introduce new products during this period.

/pdf/prices-markups-and-trade-reform-1vlg7yxzzr.pdf

Prices, Markups and Trade Reform

Most conventional accounts of India's recent economic performance associate the pick-up in economic growth with the liberalization of 1991. This Paper demonstrates that the transition to high growth occurred around 1980, a full decade before economic liberalization. We investigate a number of hypotheses about the causes of this growth - favourable external environment, fiscal stimulus, trade liberalization, internal liberalization, the green revolution, public investment - and find them wanting. We argue that growth was triggered by an attitudinal shift on the part of the national government towards a pro-business (as opposed to pro-liberalization) approach. We provide some evidence that is consistent with this argument.

/pdf/from-hindu-growth-to-productivity-surge-the-mystery-of-the-2ceq8r64zv.pdf

From 'Hindu Growth' to Productivity Surge: The Mystery of the Indian Growth Transition

We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption smoothing, provided by caste-based rural insurance networks, and the income gains from migration. Our theory generates two key empirically verified predictions: (i) males in relatively wealthy households within a caste who benefit less from the redistributive (surplus-maximizing) network will be more likely to migrate, and (ii) males in households facing greater rural income risk (who benefit more from the insurance network) migrate less. Structural estimates show that small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.

/pdf/networks-and-misallocation-insurance-migration-and-the-rural-1965y6foz3.pdf

Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap

Trade Liberalisation and Productivity Growth in Manufacturing: Evidence from Firm-Level Panel Data

Productivity estimates are sensitive to the measure of real value added that is adopted. One source of bias in estimation is that due to the assumption often made of constancy of the relative price of material inputs. This paper provides estimates of total factor productivity for Aggregate Manufacturing having adjusted for changes in this relative price.. These results indicate that, contrary to what is believed, productivity growth in the 1980s may, actually, have been slower than in-the earlier decade.

Total factor productivity growth in manufacturing industry: a fresh look

WE notice that a very substantial literature, dealing in one way or the other with the issues raised there, has appeared after the publication in 1994 of our paperl on productivity in Indian industry. It strikes us as obvious then to enquire as to how much this has furthered the profession's understanding of the subject. To that extent this is intended to be in the nature of a purposive survey organised according to the issues that we consider are important. According to us, the issues themselves may be put down to those revolving around measurement and those that revolve around

What do We Know about Productivity Growth in Indian Industry

Using firm‐level panel data we investigate whether reform of the trade and industrial policy regimes in India introduced in 1991 resulted in a reduction in market power and/or an acceleration in productivity growth, consequences that have been predicted in theory. Econometric testing of the theory for every industry group at the two‐digit level in India yielded limited evidence of acceleration in productivity growth and no evidence of a reduction in market power. This is interpreted as suggesting that in the case of Indian industry trade liberalization has not exhibited the potential often attributed to it.

Liberalization, Market Power, and Productivity Growth in Indian Industry

﻿Liberalisation, Productivity and Competition: A Panel Study of Indian Manufacturing by V Srivastava; Oxford University Press, 1996. PRODUCTIVITY, the main source of modern economic growth, has once again been discussed and debated in India in the context of recent economic reforms. With productivity growth and increasing competitiveness becoming the key issues in the industrial reform process, measurement of total factor productivity (TFP) has become a growing industry by itself. Different data sets and methodologies have been tried out culminating in the debate over the growth of TFP in the 1980s. In this brief review, we highlight some of the contentious issues emerging from the latest addition by Srivastava to this ever growing literature. We divide this review into two sections. A synopsis of the book is presented in section I. In section 2, the major micro-level findings of the study are compared and contrasted with the macro-level data in order to bring out areas for future research.

Liberalisation, Productivity and Competition-The Missing Links

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