Columbia Program on Indian Economic Policies Does Liberalization Promote Competition ?
نویسندگان
چکیده
Using firm-level data from India, this paper investigates the distributional effects of deregulation on firm size and profitability. The data suggest that average firm size declines significantly in industries that deregulated entry. Firm entry leads occurs from the left hand tail of the size distribution with more small firms entering the market while the largest incumbent firms get significantly bigger following deregulation. Quantile regressions show that the shift in the distribution of firm size is non-linear with average firm size increasing till around the 15 percentile, and then getting significantly smaller till the 90 percentile while the largest percentile (95%) gets significantly bigger over the sample period. The marginal entry of small firms is consistent with an increase in competition following entry deregulation. Consistent with a decline in monopoly power, the Herfindahl index of firm sales also shows a significant decline. While summary statistics suggest a decline in average firm profits, quantile regressions show significant non-linearity and a heterogeneous impact of deregulation on profitability. *Laura Alfaro, Harvard Business School, Morgan 263, Boston MA, 02163, U.S.A. (e-mail: [email protected]). **Anusha Chari, Department of Economics, CB #3305, University of North Carolina at Chapel Hill, Chapel Hill NC 27599, U.S.A. (email:[email protected]). We thank Arvind Panagariya, Jagdish Bhagwati, Rajeev Dehejia, and all the participants at the Columbia University India workshop for helpful comments and suggestions. Work on this paper has been supported by Columbia University’s Program on Indian Economic Policies, funded by a generous grant from the John Templeton Foundation. The opinions expressed in the paper are those of the authors and do not necessarily reflect the views of the John Templeton Foundation.
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