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 - 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 -