TY - JOUR
T1 - Market integration, demand, and the growth of firms
T2 - Evidence from a natural experiment in India
AU - Jensen, Robert
AU - Miller, Nolan H.
N1 - Funding Information:
* Jensen: Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, and NBER (email: robertje@wharton.upenn.edu); Miller: Gies College of Business, University of Illinois at Urbana-Champaign, 515 E. Gregory Drive, MC-520, Champaign, IL 61820, and NBER (email: nmiller@illinois.edu). This paper was accepted to the AER under the guidance of Esther Duflo, Editor. We would like to thank Satish Babu, Peter Cherian, C.M. Jolly, X. Joseph, David McKenzie, C.K. Muhammad, Prakash Nair, Mai Nguyen, M. Philip, P. Philip, V. Rajan, T.K. Sidhique, Joseph Thomas, Jolly Thoms, Eric Zou, and two anonymous referees for helpful comments and discussion. Financial support was provided by the Dean’s Research Fund at the Harvard Kennedy School. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.
Publisher Copyright:
© 2018 American Economic Association.
PY - 2018/12
Y1 - 2018/12
N2 - In many developing countries, the average firm is small, does not grow, and has low productivity. Lack of market integration and limited information on non- local products often leave consumers unaware of the prices and quality of non- local firms. They therefore mostly buy locally, limiting firms' potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat- building industry. As consumers learn more about non- local builders, high-quality builders gain market share and grow, while low-quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality- adjusted consumer prices decline.
AB - In many developing countries, the average firm is small, does not grow, and has low productivity. Lack of market integration and limited information on non- local products often leave consumers unaware of the prices and quality of non- local firms. They therefore mostly buy locally, limiting firms' potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat- building industry. As consumers learn more about non- local builders, high-quality builders gain market share and grow, while low-quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality- adjusted consumer prices decline.
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U2 - 10.1257/aer.20161965
DO - 10.1257/aer.20161965
M3 - Review article
AN - SCOPUS:85057849405
SN - 0002-8282
VL - 108
SP - 3583
EP - 3625
JO - American Economic Review
JF - American Economic Review
IS - 12
ER -