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Market Integration, Demand and the Growth of Firms: Evidence from a Natural Experiment in India

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  • Robert T. Jensen
  • Nolan H. Miller

Abstract

In many developing countries, the average firm is small, does not grow and has low productivity. Lack of market integration and limited information on non-local products often leave consumers unaware of the prices and quality of non-local firms. They therefore mostly buy locally, limiting firms’ potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat-building industry. As consumers learn more about non-local builders, high quality builders gain market share and grow, while low quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality-adjusted consumer prices decline.

Suggested Citation

  • Robert T. Jensen & Nolan H. Miller, 2018. "Market Integration, Demand and the Growth of Firms: Evidence from a Natural Experiment in India," NBER Working Papers 24693, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24693
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    More about this item

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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