There can no a priori assumption that an industrial sector will benefit from or be harmed by liberalization; to make a prediction, one has to look into initial technological conditions and the institutional environment. We have first argued and provided evidence that liberalization should enhance performance to a larger extent in firms or industries that are initially closer to the technological frontier. Second, we have shown that domestic institutional and policy choices, such as those that pertain to labor institutions, have a central bearing on whether firms and industries benefit from liberalization.
Our microeconomic analysis allows us to revisit the debate on liberalization. Here we believe that the devil is in the detail. For example, we saw that even if liberalization had a positive aggregate impact on productivity and output in India, it also had a negligible or negative impact on firms far below the technological frontier. This in turn suggests that complementary policies can be designed to encourage technological upgrading, either through providing incentives to existing firms or through reallocating workers from low- to high-productivity firms. Similarly, our finding that pro-worker labor regulations may limit the potential positive impact of liberalization points to complementarities between macroeconomic reforms such as tariff reductions and more microeconomic institutional reforms.
The finding that there are both winners and losers from liberalization helps us to understand why liberalization itself is often opposed even if its overall impact is positive. Even if liberalization reduces barriers to entry, groups or industries that would potentially lose from liberalization may oppose complementary institutional reforms, thus further reducing the overall impact of liberalization on economic performance. Identifying a set of liberalization reforms that are both growth-enhancing and politically feasible is an important subject for future research.
No comments:
Post a Comment