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Services Reform and Manufacturing Performance: Evidence from India

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  • Jens Matthias Arnold
  • Beata Javorcik
  • Molly Lipscomb
  • Aaditya Mattoo

Abstract

Conventional explanations for the post-1991 growth of India?s manufacturing sector focus on goods trade liberalization and industrial de-licensing. We demonstrate the powerful contribution of a neglected factor: India?s policy reforms in services. The link between these reforms and the productivity of manufacturing firms is examined using panel data for about 4,000 Indian firms for the period 1993-2005. We find that banking, telecommunications, insurance and transport reforms all had significant positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally-owned manufacturing firms, but the effects on foreign firms tended to be stronger. A one-standard-deviation increase in the aggregate index of services liberalization resulted in a productivity increase of 11.7 percent for domestic firms and 13.2 percent for foreign enterprises.
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Suggested Citation

  • Jens Matthias Arnold & Beata Javorcik & Molly Lipscomb & Aaditya Mattoo, 2016. "Services Reform and Manufacturing Performance: Evidence from India," Economic Journal, Royal Economic Society, vol. 126(590), pages 1-39, February.
    • Handle: RePEc:wly:econjl:v:126:y:2016:i:590:p:1-39
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    File URL: http://hdl.handle.net/10.1111/ecoj.2016.126.issue-590
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F2 - International Economics - - International Factor Movements and International Business
    • L8 - Industrial Organization - - Industry Studies: Services

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