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

Robert T. Jensen and Nolan H. Miller

No 24693, NBER Working Papers from National Bureau of Economic Research, Inc

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: O10 O12 (search for similar items in EconPapers)
Date: 2018-06
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Published as Robert Jensen & Nolan H. Miller, 2018. "Market Integration, Demand, and the Growth of Firms: Evidence From a Natural Experiment in India," American Economic Review, vol 108(12), pages 3583-3625.

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