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

Robert T. Jensen () and Nolan H. Miller ()

Working Papers from eSocialSciences

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). The paper explores 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.

Keywords: eSS; market integration; growth of firms; demand; natural experiment; low productivity; developing countries; information; non-local products; consumers; prices; quality of non-local firms; potential market; competition; Kerala boat-building industry; high quality builders; labor specialization; average production. (search for similar items in EconPapers)
Date: 2018-06
Note: Institutional Papers
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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