Effects of Policy Reforms on Firm Innovation

The regulatory environment in a country is an important factor that affects firm performance. This study investigates the impact of a particular regulation—license requirements for certain firm activities—on the innovation performance of Indian firms in the 1990s. Using a unique firm-level panel dat...

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Bibliographic Details
Published in:Review of industrial organization 2022-08, Vol.61 (1), p.95-121
Main Authors: Şeker, Murat, Ulu, Mehmet Fatih
Format: Article
Language:English
Subjects:
Companies
Economic reform
Economics
Economics and Finance
Industrial Organization
Innovations
Labor productivity
Licensing
Manufacturing
Microeconomics
Organizational performance
Panel data
Product development
Product lines
Production functions
R&D
Reforms
Regulatory reform
Research & development
Technology adoption
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Summary:The regulatory environment in a country is an important factor that affects firm performance. This study investigates the impact of a particular regulation—license requirements for certain firm activities—on the innovation performance of Indian firms in the 1990s. Using a unique firm-level panel data set, it shows that the removal of license requirements led to an eight percentage points higher innovation rate within two years following the reform. We measure innovation as the introduction of new product varieties that had not been produced by the firm before. It takes a longer time for firms to innovate in industries in which they were not producing before. The findings of this study are also robust to the inclusion of controls for other policy reforms that occurred during the period of licensing reform. They also persist in tests with different subgroups of firms and with the use of alternative estimation methods.
ISSN:0889-938X
1573-7160
DOI:10.1007/s11151-022-09861-2