Trade Liberalization, Imported Inputs and Factor Efficiencies: Evidence from the Auto Components Industry in India

Firm-level data were used to estimate changes in factor efficiencies - imported inputs being one of them - over three sub-periods, 1977-84,1985-91,1992-99. These respectively denote eras preceding liberalisation, those involving partial liberalisation of automotive industries, and those marked by economy-wide liberalisation. It is shown that the average size of firms increased from that in the protected regime as the degree of liberalisation advanced. The paper finds that the substitutability among inputs changed over the three sub-periods, and that the marginal products of all the inputs are very heterogeneous among firms in each period. The distributions of marginal product of labour and domestic materials have moved to the left in the later periods while that of capital has moved to the right. The distribution of marginal product of imported materials first moved to the right and then to the left compared with the distribution in the first period. Overall, the smaller firms benefited more in the earlier periods and larger ones in the last period.

  • Authors: Sanghamitra Das and Sambasiva Rao
  • Year: 2004
  • Organisation: Indian Statistical Institute
  • Publisher: Indian Statistical Institute
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