Policy, Economic Federalism & Product Market Entry: The Indian Experience

Sumon Bhaumik, Shubhasish Gangopadhyay () and Shagun Krishnan ()

No wp843, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Productivity growth has long been associated with, among others, 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 eighties and the nineties are widely believed to be pro-incumbent and procompetition, 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 nineties 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.

Keywords: Entry; Institutions; Regulations; India; Textiles; Electrical Machinery; Reforms (search for similar items in EconPapers)
JEL-codes: L11 L52 L64 L67 O14 O17 (search for similar items in EconPapers)
Pages: pages
Date: 2006-11-01
New Economics Papers: this item is included in nep-com, nep-cwa and nep-dev
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Working Paper: Policy, Economic Federalism & Product Market Entry: The Indian Experience (2007)
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