Three essays on property rights reform and industrial development in urban india

Abstract

This dissertation studies the effects of urban land deregulation in India between 1999-2007 on access to credit, factor allocations and productivity of Indian firms. The deregulation repealed limitations on holdings and transfer of real estate property, potentially enhancing collateralizability of land and liquidity in the land market. The first chapter develops a theoretical model to predict the effects of the deregulation and clarify the channels of impact. The second chapter uses data for large and medium sized Indian firms from the PROWESS database to empirically examine the effect of the deregulation on the access of firms to credit. The third chapter uses the same dataset to examine effects on factor allocation within and across firms, and on firm as well as aggregate productivity. The first chapter provides a theoretical model of the deregulation and its effects on use of land as collateral. This is in a setting of competitive credit markets where loan contracts are subject to moral hazard. The model predicts that the deregulation expanded the collateral value of land and access to credit for medium-sized firms. On the other hand, the credit access could decline for small and large size firms owing to general equilibrium effects of the increased credit demand. The effects are predicted to vary with historical landholdings of firms. The second chapter uses the panel data set of Indian firms to test the theoretical predictions of the first chapter. I find that the land deregulation led to greater land transactions overall. Moreover, the deregulation reallocated credit from landless, landed-small and large firms, to landed-medium firms in a manner consistent with the theoretical predictions. The third chapter uses the same data set to examine the effects of the deregulation on productivity and factor allocation across firms and industries of manufacturing sector. I find that firm productivity became more dispersed. Resources are reallocated from less to more productive firms. As a result, aggregate productivity of the treatment states increased as compared to that of the control states. Additional regression analyses suggest that market competition generated these differential effects on firm productivity.