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Title: Services Reform and Manufacturing Performance: Evidence from India

Author(s): Jens Arnold, Beata Javorcik, Molly Lipscomb and Aaditya Mattoo

Publication Date: September 2010

Keyword(s): foreign direct investment, liberalization, productivity and services reform

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Arnold, J, Javorcik, B, Lipscomb, M and Mattoo, A. 2010. 'Services Reform and Manufacturing Performance: Evidence from India'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8011