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Deregulation, Misallocation, and Size: Evidence from IndiaLaura AlfaroHarvard University - Business, Government and the International Economy Unit Anusha ChariUniversity of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER) December 18, 2012 Harvard Business School BGIE Unit Working Paper No. 13-056 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.
Number of Pages in PDF File: 51 JEL Classification: F43, G31, G38, O12, O14, L10 working papers seriesDate posted: December 18, 2012Suggested CitationContact Information
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