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Policy, economic federalism, and product market entry: the Indian experience

Author

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  • S. K. Bhaumik
  • S. Gangopadhyay
  • S. Krishnan

Abstract

Productivity growth has long been associated with, among other things, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm's ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the 1980s and the 1990s are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the 1990s may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses. La croissance de la productivité a longtemps été associée, entre autres, avec la contestabilité des marchés, qui à son tour dépend de la facilité avec laquelle des concurrents potentiels pour les entreprises en place peuvent entrer sur le marché. Il existe un consensus croissant sur le fait que, sur les marchés émergents, les facteurs institutionnels et régulateurs peuvent avoir un meilleur impact sur la capacité des entreprises à pénétrer un marché que des stratégies adoptées à cet effet par les entreprises en place. Cette hypothèse est examinée dans le cas de l'Inde, où il est communément admis que les politiques industrielles des années 1980 avaient été favorables aux entreprises en place alors que celles des années 1990 se montrèrent plus ouvertes à la concurrence; cela fournit ainsi le cadre d'une expérience naturelle où 1991 est considéré comme l'année charnière. Notre analyse considère également que le fédéralisme économique plus important associé aux réformes des années 1990 pourrait avoir affecté la répartition géographique des activités industrielles entre les différents Etats. Notre article, en s'appuyant sur les cas des secteurs du textile et des équipements électriques au cours des deux décennies, fournit des arguments en faveur de ces deux hypothèses.

Suggested Citation

  • S. K. Bhaumik & S. Gangopadhyay & S. Krishnan, 2008. "Policy, economic federalism, and product market entry: the Indian experience," The European Journal of Development Research, Taylor and Francis Journals, vol. 20(1), pages 1-30.
  • Handle: RePEc:taf:eurjdr:v:20:y:2008:i:1:p:1-30
    DOI: 10.1080/09578810701853124
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    Cited by:

    1. repec:wdi:papers:2011-1029 is not listed on IDEAS
    2. Bhaumik, Sumon K. & Dimova, Ralitza, 2012. "Does Human Capital Endowment of FDI Recipient Countries Really Matter? Evidence from Cross-Country Firm Level Data," IZA Discussion Papers 6382, Institute of Labor Economics (IZA).
    3. Aradhna Aggarwal & Takahiro Sato, 2011. "Firm Dynamics and Productivity Growth in Indian Manufacturing: Evidence from Plant Level Panel Dataset," Discussion Paper Series DP2011-07, Research Institute for Economics & Business Administration, Kobe University.
    4. Bhaumik, Sumon K. & Dimova, Ralitza & Kumbhakar, Subal C. & Sun, Kai, 2012. "Does Institutional Quality Affect Firm Performance? Insights from a Semiparametric Approach," IZA Discussion Papers 6351, Institute of Labor Economics (IZA).
    5. Sumon Kumar Bhaumik & Ralitza Dimova, 2013. "Special Issue. Guest Editor: Zhihao Yu," Review of Development Economics, Wiley Blackwell, vol. 17(3), pages 559-570, August.
    6. Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2009. "Reforms and Entry: Some Evidence from the Indian Manufacturing Sector," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 658-672, November.

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