We study the size-productivity relationship of manufacturing firms in India. Like other developing countries, India has been characterized by large size heterogeneity of firms within the same industry. In the context of growing liberalization of trade, licensing and monopoly policies since 1991 and growing incentives to small and medium scale firms, productivity implications of size heterogeneity has become more important. We find that smaller firms that are in the lowest quintile of the asset distribution are more productive than their larger counterparts. For identification, we exploit the panel nature of the data and use production-function estimation technique as developed by Levinsohn and Petrin (2003) to estimate the total factor productivity and Arellano and Bond (1991) type of dynamic estimation to control for potential endogeneity arising out of the persistence of productivity.
Prabal K. De and Priya Nagaraj. "Is Small Beautiful? Size-Productivity Relationship in Indian Manufacturing." Proceedings of the New York State Economics Association. vol. 3, September 2010, p. 28-37
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