Liberalization, market power, and productivity growth in Indian industry

Using firm-level panel data we investigate whether reform of the trade and industrial policy regimes in India introduced in 1991 resulted in a reduction in market power and/or an acceleration in productivity growth, consequences that have been predicted in theory. Econometric testing of the theory for every industry group at the two-digit level in India yielded limited evidence of acceleration in productivity growth and no evidence of a reduction in market power. This is interpreted as suggesting that in the case of Indian industry trade liberalization has not exhibited the potential often attributed to it.