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DECTI Trade Seminar: Identifying the Aggregate Productivity Effects of Entry and Size Restrictions

An Empirical Analysis of License Reform in India
Location:   MC6-500
Begins:   Oct 21, 2010 13:00
Ends:   Oct 21, 2010 14:30
Contact Person:   Yasmin D Souza

Speaker: Amalavoyal Chari, Cornell University

Abstract: Recent studies have stressed the importance of distortions in resource allocation across heterogeneous establishments in generating large TFP effects. There is however little direct empirical evidence from actual policy experiments on the magnitude of these effects. In this paper we propose and implement a simple methodology that empirically identifies the separate e¤ects of entry and size restrictions on aggregate TFP and apply it to an analysis of the policy of industrial licensing in India. The licensing policy was notably reformed in the mid-1980s, and we take advantage of this policy experiment to identify the e¤ects of the licensing regime using factory-level data covering this period. Our results suggest that the easing of constraints on size were responsible for a 5-6% aggregate TFP improvement, and that the easing of entry restrictions resulted in a nearly 15-16% TFP improvement.

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