Does Liberalization Promote Competition?

Laura Alfaro; Anusha Chari

Does Liberalization Promote Competition?
Alfaro, Laura
Chari, Anusha
Working papers
Program on Indian Economic Policies
Permanent URL:
Program on Indian Economic Policies Working Papers
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School of International and Public Affairs, Columbia University
Publisher Location:
New York
Using firm-level data from India, this paper investigates the distributional effects of deregulation on firm size and profitability. The data suggest that average firm size declines significantly in industries that deregulated entry. Firm entry leads occurs from the left hand tail of the size distribution with more small firms entering the market while the largest incumbent firms get significantly bigger following deregulation. Quantile regressions show that the shift in the distribution of firm size is non-linear with average firm size increasing till around the 15th percentile, and then getting significantly smaller till the 90th percentile while the largest percentile (95%) gets significantly bigger over the sample period. The marginal entry of small firms is consistent with an increase in competition following entry deregulation. Consistent with a decline in monopoly power, the Herfindahl index of firm sales also shows a significant decline. While summary statistics suggest a decline in average firm profits, quantile regressions show significant non-linearity and a heterogeneous impact of deregulation on profitability.
Economics, Commerce-Business
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Suggested Citation:
Laura Alfaro, Anusha Chari, 2011, Does Liberalization Promote Competition?, Columbia University Academic Commons, http://hdl.handle.net/10022/AC:P:10826.

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