Market Integration, Demand and the Growth of Firms: Evidence from a Natural Experiment in India

Published By: National Bureau of Economic Research (NBER) | Published Date: June, 01 , 2018

In many developing countries, the average firm is small, does not grow and has low productivity. Lack of market integration and limited information on non-local products often leave consumers unaware of the prices and quality of non-local firms. They therefore mostly buy locally, limiting firms’ potential market size (and competition). The paper explores this hypothesis using a natural experiment in the Kerala boat-building industry. As consumers learn more about non-local builders, high quality builders gain market share and grow, while low quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality-adjusted consumer prices decline.

Author(s): Robert T. Jensen, Nolan H. Miller | Posted on: Jun 12, 2018 | Views() | Download (58)

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