Entry, Reforms, Complementarity and Performance: A Tale of Two Indian Manufacturing Sectors

Posted: 17 Dec 2007

See all articles by Sumon K. Bhaumik

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

Shubhashis Gangopadhyay

India Development Foundation; University of Gothenburg; University of Groningen, Faculty of Economics and Business, Students; Indian School of Public Policy

Shagun Krishnan

Indian Statistical Institute, New Delhi - India Development Foundation

Abstract

In this paper, we use plant level data from two Indian industries, namely, electrical machinery and textiles, to examine the empirical relationship between structural reforms like abandonment of entry restrictions to the product market, competition and firm-level productivity and efficiency. These industries have faced different sets of policies since Independence but both were restricted in the adoption of technology and in the development of optimal scales of production. They also belonged to the first set of industries that benefited from the liberalization process started in the 1980s. Our results suggest that both the industries have improved their efficiency and scales of operation by the turn of the century. However, the process of adjustment seems to have been worked out more fully for electrical machinery. We also find evidence of spatial fragmentation of the market as late as 2000-01. Gains in labour productivity were much more evident in states that either have a strong history of industrial activity or those that have experienced significant improvements in business environment since 1991.

Keywords: India, Reforms, Industry, Textiles, Electrical machinery, Efficiency

JEL Classification: L52, L64, L67, O25

Suggested Citation

Bhaumik, Sumon K. and Bhaumik, Sumon K. and Gangopadhyay, Shubhashis and Krishnan, Shagun, Entry, Reforms, Complementarity and Performance: A Tale of Two Indian Manufacturing Sectors. Economic Systems, Vol. 31, No. 4, 2007, Available at SSRN: https://ssrn.com/abstract=1075063

Sumon K. Bhaumik (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, West Midlands B47ET
United Kingdom

Institute for the Study of Labor (IZA) ( email )

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Shubhashis Gangopadhyay

India Development Foundation ( email )

4101 DLF Phase IV
Gurugram, Haryana 122002
India
+91 9910991221 (Phone)

University of Gothenburg

Gothenburg
Sweden

University of Groningen, Faculty of Economics and Business, Students

Postbus 72
9700 AB Groningen
Netherlands

Indian School of Public Policy

Delhi
India

Shagun Krishnan

Indian Statistical Institute, New Delhi - India Development Foundation ( email )

249 F, Sector 18
Udyog Vihar Phase IV
Gurgaon, Haryana 122015
India

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