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

Robert Jensen and Nolan H. Miller

American Economic Review, 2018, vol. 108, issue 12, 3583-3625

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.

JEL-codes: D22 D83 L15 L25 L62 O12 O14 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20161965
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Citations: View citations in EconPapers (40)

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