Identifying the Aggregate Productivity Effects of Entry and Size Restrictions: An Empirical Analysis of License Reform in India

Abstract

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. (JEL L11, L24, O14, O47)