Working Paper: NBER ID: w16733
Authors: Ann E. Harrison; Leslie A. Martin; Shanthi Nataraj
Abstract: The new trade theory emphasizes the role of market-share reallocations across firms ("stealing") in driving productivity growth, while the older literature focused on average productivity improvements ("learning"). We use comprehensive, firm-level data from India's organized manufacturing sector to show that market-share reallocations did play an important role in aggregate productivity gains immediately following the start of India's trade reforms in 1991. However, aggregate productivity gains during the overall 20-year period from 1985 to 2004 were driven largely by improvements in average productivity. By exploiting the variation in reforms across industries, we document that the average productivity increases can be attributed to India's trade liberalization and FDI reforms. Finally, we construct a panel dataset that allows us to track firms during this time period; our results suggest that while within-firm productivity improvements were important, much of the increase in average productivity also occured because of firm entry and exit.
Keywords: Market Share Reallocations; Productivity Growth; Trade Liberalization; India
JEL Codes: F13; F14; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average decline in final goods tariffs (F19) | aggregate productivity (E23) |
| decline in input tariffs (F14) | aggregate productivity (E23) |
| FDI liberalization (F23) | aggregate productivity (E23) |
| trade liberalization (F13) | average productivity improvements (O49) |
| market share reallocations (D26) | productivity growth (O49) |
| firm entry and exit dynamics (L26) | productivity growth (O49) |
| learning (C91) | aggregate productivity growth (O49) |
| market share reallocations (D26) | average productivity improvements (O49) |