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Deregulation, Misallocation, and Size: Evidence from India

Laura Alfaro () and Anusha Chari ()

No 18650, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm-size dynamics and the reallocation of resources within industries over time. Following deregulation, we find that the extent of resource misallocation declines and a considerable thickening of the left-hand tail of the firm-size distribution suggesting a significant increase in the number of small firms. However, the dominance and growth of large incumbents remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly non-linear. The size distribution we observe--namely, a large number of small firms and a small number of large firms--can be characterized as the "missing middle" in Indian manufacturing and suggests that small firms may continue to face constraints in their attempts to grow.

JEL-codes: F43 G31 G38 L10 O12 O14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-dev
Date: 2012-12
Note: EFG IFM PR
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Published as Laura Alfaro & Anusha Chari, 2014. "Deregulation, Misallocation, and Size: Evidence from India," Journal of Law and Economics, University of Chicago Press, vol. 57(4), pages 897 - 936.

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Journal Article: Deregulation, Misallocation, and Size: Evidence from India (2014) Downloads
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