Three essays on the effects of regulatory institutions on Indian firms

Abstract

In this dissertation I study ways in which regulatory institutions affect firms in India. The first chapter (coauthored with Michael Gechter) investigates the effects of an important but little-researched set of Indian labor regulations which only apply to establishments that hire 10 or more employees. Using data from India's 2005 Economic Census, we observe that the distribution of establishments by size closely follows a power law, but with a significant drop in the distribution for establishments with 10 or more workers. By fitting this distribution to a model of firm size choice in the presence of size-based regulations, we use this break in the observed distribution to estimate the implied costs of the regulation. In the second chapter I examine whether the speed of courts contributes to economic growth. I do this by making the assumption - following Nunn (2007) - that fast courts should be more beneficial to firms in contract-intensive industries, where contract intensity is measured by the proportion of inputs in an industry that cannot be bought on an organized exchange. Using data on Indian firms covering the period 1999-2008 I find that firms profits and value-added grew faster in contract-intensive industries that were located in states with faster courts. The third chapter (also coauthored with Michael Gechter) examines the effects of removal of regulations between 2001-06 that had previously reserved certain products for exclusive production by firms with capital below a certain threshold. Our main finding is that de-reservation led to an increase in firm investment and output by certain groups of firms.