Working Paper: CEPR ID: DP8011
Authors: Jens Arnold; Beata Javorcik; Molly Lipscomb; Aaditya Mattoo
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 Codes: D24; F2; L8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| services sector reforms (E69) | manufacturing productivity (L23) |
| banking sector reforms (G28) | manufacturing productivity (L23) |
| telecommunications reforms (L96) | manufacturing productivity (L23) |
| transport reforms (R48) | manufacturing productivity (L23) |
| insurance reform (G52) | manufacturing productivity (L23) |