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American Economic Review Vol. 107 No. 2 2017

In with the Big, Out with the Small: Removing Small-Scale Reservations in India

Leslie Martin1; Shanthi Nataraj2; Ann Harrison3

1 University of Melbourne, 111 Barry Street, University of Melbourne, VIC 3010 Australia (e-mail: ) · 2 RAND Corporation, 1776 Main Street, Santa Monica, CA 90401 (e-mail: ) · 3 The Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, and NBER (e-mail: )

open access

Abstract

An ongoing debate in employment policy is whether promoting small and medium enterprises creates jobs. We use the elimination of small-scale industry (SSI) promotion in India to address this question. For 60 years, SSI promotion in India focused on reserving certain products for manufacture by small and medium enterprises. We identify the consequences for employment growth, investment, output, productivity, and wages of dismantling India's SSI reservations. We exploit variation in the timing of de-reservation across products and also measure the long-run impact of national SSI policy changes using variation in pretreatment exposure at the district level. Districts more exposed to de-reservation experienced higher employment and output growth. Entrants into the de-reserved product spaces and incumbents that were previously constrained by the size restrictions drove the increase in growth. The results suggest that dismantling India's SSI policies encouraged overall employment growth.

DOI
10.1257/aer.20141335
Volume
107
Issue
2
Pages
354-386
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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