Trade Reforms and the Efficiency of Firms in India

Uma Kambhampati

Oxford Development Studies, 2003, vol. 31, issue 2, 219-233

Abstract: In this paper, we analyse the impact of reforms on manufacturing efficiency in India. The sector chosen--the cotton textile industry in India--is a very large employer and exporter and also has considerable historical significance. Its response to the reforms therefore is being watched with some concern. The paper concludes that while there was considerable dispersion in efficiency levels before the reforms, this dispersion has decreased since the reforms. To analyse this, we estimate a best practice frontier for the industry and then measure efficiency as the distance from this frontier. We find that efficiency has increased because the reforms have influenced other factors such as market shares, exports and imports and capital-labour ratios. Our results also indicate that geography--the location of the firm within a state and its proximity to a major urban centre--influences the efficiency levels of firms within it.

Date: 2003
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DOI: 10.1080/13600810307429

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