Services Reform and Manufacturing Performance: Evidence from India

50 Pages Posted: 14 Nov 2010

See all articles by Jens Matthias Arnold

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Beata Smarzynska Javorcik

University of Oxford - Department of Economics

Molly Lipscomb

Batten School of Public Policy

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Date Written: September 2010

Abstract

Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on goods trade liberalization and industrial de-licensing. We demonstrate the powerful contribution of a neglected factor: India’s policy reforms in services. The link between these reforms and the productivity of manufacturing firms is examined using panel data for about 4,000 Indian firms for the period 1993-2005. We find that banking, telecommunications, insurance and transport reforms all had significant positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally-owned manufacturing firms, but the effects on foreign firms tended to be stronger. A one-standard-deviation increase in the aggregate index of services liberalization resulted in a productivity increase of 11.7 percent for domestic firms and 13.2 percent for foreign enterprises.

Keywords: foreign direct investment, liberalization, productivity, services reform

JEL Classification: D24, F2, L8

Suggested Citation

Arnold, Jens Matthias and Smarzynska Javorcik, Beata and Lipscomb, Molly and Mattoo, Aaditya, Services Reform and Manufacturing Performance: Evidence from India (September 2010). CEPR Discussion Paper No. DP8011. Available at SSRN: https://ssrn.com/abstract=1707901

Jens Matthias Arnold (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Molly Lipscomb

Batten School of Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

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