Identifying the Aggregate Productivity Effects of Entry and Size Restrictions

An Empirical Analysis of License Reform in India

Published in: American Economic Journal: Economic Policy, v. 3, no. 2, May 2011, p. 66-96

Posted on RAND.org on May 01, 2011

by Amalavoyal V. Chari

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Distortions in the allocation of resources between heterogeneous producers have the potential to generate large reductions in aggregate productivity, a point that has been stressed by recent studies. There is, however, little direct empirical evidence from actual policy experiments on the magnitude of these effects. This paper proposes a simple methodology that empirically identifies the separate effects of entry and size restrictions on aggregate productivity, and uses it to analyse the impact of a policy reform in India.

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