Competition, Openness and Inequality of Firm Size in the Indian Manufacturing

Abstract

This article is an attempt to study the impacts of trade openness and competition on inequality of firm size in the Indian manufacturing during 1990–2010. A number of empirical studies have observed a positive skewness in the size distribution of firms (log-normal distribution) and an increasing concern over raising inequality of firm sizes in the industry. I have attempted to study the direction of the causation between export openness and inequality of firm size distribution (FSD), which is not often studied so far, despite it being purely empirical. The empirical results clearly show that export openness is statistically significant (1 per cent) throughout all the models and has negative effects on inequality. This is one interesting and robust empirical finding that export openness has the capability to reduce inter-firm performance differences, and hence, reducing inequality in FSD.