NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Market Integration, Demand and the Growth of Firms: Evidence from a Natural Experiment in India

Robert T. Jensen, Nolan H. Miller

NBER Working Paper No. 24693
Issued in June 2018
NBER Program(s):Development Economics

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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Document Object Identifier (DOI): 10.3386/w24693

 
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