The Unequal Effect of India's Industrial Liberalization on Firms’ Decision to Innovate: Do Business Conditions Matter?

Maria Bas and Caroline Paunov

Journal of Industrial Economics, 2018, vol. 66, issue 1, 205-238

Abstract: Product†market competition can boost industry growth if firms invest more in innovation. Using a natural policy experiment, the removal of India's License Raj, we show that firms in liberalized industries were 9% more likely to invest in R&D than firms in non†liberalized industries. However, the impacts were not the same across firms of different size. After the reforms, firms in the top quartile were 23% more likely to invest in R&D than those in the lowest size quartile. Both productivity differences across firms and the heterogeneous impacts of business conditions on firms explain unequal effects of India's industrial liberalization reform.

Date: 2018
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