Market Reforms and Industrial Productivity: An Explanation

Abstract

Several developing economies, such as India, that had implemented policy reforms towards market mechanism have been experiencing high economic growth. This paper brings out the factors that determine micro level firm level productivity in the context of a developing economy that had undertaken the policy reforms towards a freer market. It econometrically tests a few hypotheses on the basis of firm level panel data for a set of Indian industries. One of the strong results of the paper is that firm level outward orientation of exports and imports contributes significantly and positively to firm level productivity. This finding supports one of the propositions of the new growth theory that developing economies benefit significantly with free trade with developed economies through free flow of new ideas and technologies and externalities.

Keywords: Market reforms, openness, performance and productivity

JEL Classification: D21, F14, O40