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Entry liberalization and inequality in industrial performance


Aghion, Philippe; Burgess, Robin; Redding, Stephen; Zilibotti, Fabrizio (2005). Entry liberalization and inequality in industrial performance. Journal of the European Economic Association, 3(2-3):291-302.

Abstract

Industrial delicensing which began in 1985 in India marked a discrete break from a past of centrally planned industrial development. Similar liberalization episodes are taking place across the globe. We develop a simple Schumpeterian growth model to understand how firms respond to the entry threat imposed by liberalization. The model emphasises that firm responses, even within the same industrial sector, are likely to be heterogeneous leading to an increase in within industry inequality. Technologically advanced firms and those located in regions with pro-business institutions are more likely to respond to the threat of entry by investing in new technologies and production processes. Empirical analysis using a panel of 3-digit state-industry data from India for the period 1980-1997 confirms that delicensing led to an increase in within industry inequality in industrial performance.

Abstract

Industrial delicensing which began in 1985 in India marked a discrete break from a past of centrally planned industrial development. Similar liberalization episodes are taking place across the globe. We develop a simple Schumpeterian growth model to understand how firms respond to the entry threat imposed by liberalization. The model emphasises that firm responses, even within the same industrial sector, are likely to be heterogeneous leading to an increase in within industry inequality. Technologically advanced firms and those located in regions with pro-business institutions are more likely to respond to the threat of entry by investing in new technologies and production processes. Empirical analysis using a panel of 3-digit state-industry data from India for the period 1980-1997 confirms that delicensing led to an increase in within industry inequality in industrial performance.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2005
Deposited On:16 Feb 2015 15:56
Last Modified:27 Apr 2017 06:27
Publisher:MIT Press
ISSN:1542-4766
Additional Information:The definitive version is available at www3.interscience.wiley.com
Publisher DOI:https://doi.org/10.1162/jeea.2005.3.2-3.291
Official URL:http://www.mitpressjournals.org/doi/pdfplus/10.1162/jeea.2005.3.2-3.291

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