Working Paper: NBER ID: w24693
Authors: Robert T. Jensen; Nolan H. Miller
Abstract: In many developing countries, the average firm is small, does not grow and has low productivity. Lack of market integration and limited information on non-local products often leave consumers unaware of the prices and quality of non-local firms. They therefore mostly buy locally, limiting firms’ potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat-building industry. As consumers learn more about non-local builders, high quality builders gain market share and grow, while low quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality-adjusted consumer prices decline.
Keywords: Market Integration; Firm Growth; Natural Experiment; Boatbuilding Industry; India
JEL Codes: O10; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of mobile phones in Kerala (L96) | Fishermen's ability to sell catch outside local markets (Q27) |
| Fishermen's ability to sell catch outside local markets (Q27) | Information about quality of nonlocal boat builders (L73) |
| Information about quality of nonlocal boat builders (L73) | Market integration (F15) |
| Market integration (F15) | Higher market shares for high-quality builders (L74) |
| Market integration (F15) | Growth for high-quality builders (L74) |
| Market integration (F15) | Loss of market share for low-quality builders (L74) |
| Market integration (F15) | Exit of low-quality builders (L74) |
| Higher baseline quality (L15) | Growth in market share and size (L25) |
| Lower quality (L15) | Declines in market share and size (D49) |
| Market integration (F15) | Improvement in average lifespan of boats produced (L62) |
| Market integration (F15) | Decrease in average production costs (D24) |