Affiliation:
1. Department of Economics, UCLA
2. NBER
3. CEPR
4. Department of Economics, Princeton University
Abstract
We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity for affected industries in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. Liberalization increases capital overall. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 23%, physical capital by 53%, wage bills by 28%, and reduces MRPK by 33% relative to low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that inefficiencies in that sector may cause misallocation. Finally, we propose an assumption under which a novel method exploiting natural experiments can be used to bound the effect of changes in misallocation on treated industries' aggregate productivity. These industries' Solow residual increases by 3–16%.
Funder
Stanford University
Centre for Economic Policy Research
Canadian Institute for Advanced Research
National Bureau of Economic Research
New York University
Columbia University
Toulouse School of Economics
Institut Européen d'Administration des Affaires
Collaborative Research in Engineering, Science and Technology Centre
World Bank Group
Dartmouth College
University of Toronto
University of California, Los Angeles
University of California, San Diego
Business School, Hebrew University of Jerusalem
International Growth Centre
National Science Foundation
Subject
Economics and Econometrics
Cited by
20 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献