Policy, Economic Federalism, and Product Market Entry: The Indian Experience

48 Pages Posted: 9 Nov 2006 Last revised: 5 Aug 2008

See all articles by Sumon K. Bhaumik

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

Shagun Krishnan

Indian Statistical Institute, New Delhi - India Development Foundation

Shubhashis Gangopadhyay

India Development Foundation; University of Gothenburg; University of Groningen, Faculty of Economics and Business, Students; Indian School of Public Policy

Date Written: November 1, 2006

Abstract

Productivity growth has long been associated with, among others, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm's ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the eighties and the nineties are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the nineties may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

Keywords: Entry, Institutions, Regulations, India, Textiles, Electrical Machinery, Reforms

JEL Classification: L11, L52, L64, L67, O14, O17

Suggested Citation

Bhaumik, Sumon K. and Bhaumik, Sumon K. and Krishnan, Shagun and Gangopadhyay, Shubhashis, Policy, Economic Federalism, and Product Market Entry: The Indian Experience (November 1, 2006). William Davidson Institute Working Paper No. 843, Available at SSRN: https://ssrn.com/abstract=943491 or http://dx.doi.org/10.2139/ssrn.943491

Sumon K. Bhaumik (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, West Midlands B47ET
United Kingdom

Institute for the Study of Labor (IZA) ( email )

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Shagun Krishnan

Indian Statistical Institute, New Delhi - India Development Foundation ( email )

249 F, Sector 18
Udyog Vihar Phase IV
Gurgaon, Haryana 122015
India

Shubhashis Gangopadhyay

India Development Foundation ( email )

4101 DLF Phase IV
Gurugram, Haryana 122002
India
+91 9910991221 (Phone)

University of Gothenburg

Gothenburg
Sweden

University of Groningen, Faculty of Economics and Business, Students

Postbus 72
9700 AB Groningen
Netherlands

Indian School of Public Policy

Delhi
India

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