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CEP discussion paper
The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India
Philippe Aghion, Robin Burgess, Stephen J. Redding and Fabrizio Zilibotti June 2006
Paper No' CEPDP0728:
Full Paper (pdf)

JEL Classification: O14; O18; O21

Tags: delicensing; economic development; labour regulation

This paper investigates whether the effects, on registered manufacturing out- put, employment, entry and investment, of dismantling the .license raja system of central controls regulating entry and production activity in this sector .vary across Indian states with different labor market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following de-licensing, industries located in states with pro-employer labor market institutions grew more quickly than those in pro-worker environments. Our results emphasize how local institutions matter for whether industry in a region benefits or is harmed by the nationwide delicensing reform.