The unequal effect of India's industrial liberalization on firms' decision to innovate: Do business conditions matter?
Maria Bas & Caroline Paunov
This paper examines the heterogeneous impact of industrial
liberalization policy, the dismantling of the "License Raj" in India, on
firms' innovation performance. Our results show that larger and more
productive firms in liberalized industries were more likely to take up
R&D while the smallest and least efficient firms were less likely to do
so. We also show that this inequality of effects was strongest in
economically less developed Indian states and where financial
development and the knowledge base are weaker. This suggests business
conditions shape heterogeneous impacts of liberalization policies to the
advantage of initially larger and more efficient firms.
Keywords: Industrial liberalization, innovation, R&D, firm heterogeneities, policy impacts, policy complementarities, firms, India
JEL Classification: O25, O31, O14, D22, L2, L6