Multi-Product Firms and Product Turnover in the Developing World: Evidence from India

45 Pages Posted: 20 Aug 2008

See all articles by Pinelopi Koujianou Goldberg

Pinelopi Koujianou Goldberg

Princeton University; National Bureau of Economic Research (NBER)

Amit Khandelwal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Bureau for Research and Economic Analysis of Development (BREAD)

Nina Pavcnik

Dartmouth College - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Petia B. Topalova

International Monetary Fund (IMF)

Date Written: June 2008

Abstract

Recent theoretical work predicts that an important margin of adjustment to deregulation or trade reforms is the reallocation of output within firms through changes in their product mix. Empirical work has accordingly shifted its focus towards multi-product firms and their product mix decisions. Existing studies have however focused exclusively on the U.S. Using detailed firm-level data from India, we provide the first evidence on the patterns of multi-product firm production in a large developing country during a period (1989-2003) that spans large-scale trade and other market reforms. We find that in the cross-section, multi-product firms in India look remarkably similar to their U.S. counterparts, confirming the predictions of recent theoretical models. The time-series patterns however exhibit important differences. In contrast to evidence from the U.S., product churning - particularly product rationalization - is far less common in India. We thus find little evidence of "creative destruction". We also find no link between declines in tariffs on final goods induced by Indian's 1991 trade reform and product dropping. The lack of product dropping is consistent with the role of industrial regulation in India, which, like in many other developing countries, may prevent an efficient allocation of resources.

Keywords: creative destruction, developing countries, India, multiproduct firms, product churning, trade liberalization

JEL Classification: F12, F13, L11

Suggested Citation

Goldberg, Pinelopi Koujianou and Khandelwal, Amit Kumar and Pavcnik, Nina and Topalova, Petia B., Multi-Product Firms and Product Turnover in the Developing World: Evidence from India (June 2008). CEPR Discussion Paper No. DP6881. Available at SSRN: https://ssrn.com/abstract=1240191

Pinelopi Koujianou Goldberg

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amit Kumar Khandelwal

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/akhandelwal/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/amit_khandelwal

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Nina Pavcnik (Contact Author)

Dartmouth College - Department of Economics ( email )

6106 Rockefeller Hall
Hanover, NH 03755
United States
603-646-2537 (Phone)
603-646-2122 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Petia B. Topalova

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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