Has liberalization affected profit margins in Indian industry?

Kambhampati, Uma S. and Parikh, Ashok (2005) Has liberalization affected profit margins in Indian industry? Bulletin of Economic Research, 57 (3). pp. 273-304. ISSN 0307-3378

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In this article, we analyse the determinants of firm-level profit margins in Indian manufacturing. The model we estimate is rich in its dynamic characterization allowing as it does for lagged terms, trend movements, business cycle effects and a structural break in 1991. We hypothesize that the reforms undertaken by the government in 1991 constitute a structural break that influences a firm's independence to react to other firms as well as the extent of competition faced by these firms. Inserting this into the standard industrial organization model of profits, we obtain a dynamic market model. Estimating this model for 1980-98, we find that the 1991 reforms did have a significant impact on profit margins in Indian industry. The reforms have worked through their impact on a firm's behavioural variables - advertising, Research and Development (R&D), capital-output ratios and managerial remuneration - though the precise variables that were significant varied from sector to sector. We find that relatively inefficient firms make significantly lower profits than others both before and after the liberalization as expected.

Item Type: Article
Uncontrolled Keywords: dynamic panel,inefficiency,liberalization,profit margins
Faculty \ School: Faculty of Social Sciences > School of Economics
Related URLs:
Depositing User: Pure Connector
Date Deposited: 19 Nov 2013 16:14
Last Modified: 09 Aug 2023 14:30
URI: https://ueaeprints.uea.ac.uk/id/eprint/44489
DOI: 10.1111/j.0307-3378.2005.00224.x

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