DP5492 The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India

Author(s): Philippe Aghion, Robin Burgess, Stephen J. Redding, Fabrizio Zilibotti
Publication Date: February 2006
Keyword(s): delicensing, economic development, labour regulation
JEL(s): O14, O18, O21
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5492

This paper investigates whether the effects, on registered manufacturing output, employment, entry and investment, of dismantling the 'license raj' - a system of central controls regulating entry and production activity in this sector - vary across Indian states with different labour market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labour market institutions grew more quickly than those in pro-worker environments. Our results emphasize how local institutions matter for whether industry in a region benefits or is harmed by the nationwide delicensing reform.