Self-Employment Profits: The Case of India
Posted: 14 Jun 2017 Last revised: 29 Mar 2018
Date Written: June 13, 2017
The present paper contributes to the limited literature on the factors affecting firm performance in the developing country context of India. The study uses the Indian Human Development Survey (IHDS) panel data for the years 2005-06 and 2011-12. The study employs Ordinary Least Squares (OLS) regression to analyse the determinants of profitability, making efforts to correct for potential endogeneity and selection bias in the earnings function. Attempts to correct for endogeneity is made using instrumental variables method as well as using lag values of potentially endogenous variables in the earnings model. The findings point towards a significant influence of role models, capital constraints, human capital and the market environment on firm performance. However, social networks are not found to influence firm profitability significantly. Further, earnings are found to be significantly lower for female-headed firms and firms owned by socially-marginalized groups.
Keywords: Self-employment; profits; earnings; endogeneity; human capital; social networks; credit constraints; caste; gender; India
JEL Classification: C21, C26, J15, J16, L25, L26
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