TY  - BOOK
AU  - Bau,Natalie
AU  - Matray,Adrien
ED  - National Bureau of Economic Research.
TI  - Misallocation and Capital Market Integration: Evidence From India 
T2  - NBER working paper series
PY  - 2020///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - October 2020; Hardcopy version available to institutional subscribers
N2  - We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%
UR  - https://www.nber.org/papers/w27955
UR  - http://dx.doi.org/10.3386/w27955
ER  -