Entry liberalization and inequality in industrial performance

Philippe Aghion, Robin Burgess, Stephen Redding, Fabrizio Zilibotti

Research output: Contribution to journalArticlepeer-review

79 Scopus citations


Industrial delicensing, which began in 1985 in India marked a discrete break from a past of centrally planned industrial development. Similar liberalization episodes are taking place across the globe. We develop a simple Schumpeterian growth model to understand how firms respond to the entry threat imposed by liberalization. The model emphasizes that firm responses, even within the same industrial sector, are likely to be heterogeneous leading to an increase in within industry inequality. Technologically advanced firms and those located in regions with pro-business institutions are more likely to respond to the threat of entry by investing in new technologies and production processes. Empirical analysis using a panel of three-digit state-industry data from India for the period 1980-1997 confirms that delicensing led to an increase in within industry inequality in industrial performance.

Original languageEnglish (US)
Pages (from-to)291-302
Number of pages12
JournalJournal of the European Economic Association
Issue number2-3
StatePublished - 2005
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance


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