The Aggregate Productivity Effects of Entry and Output Restrictions : An Analysis of License Reform in India

How do restrictions on entry and output affect aggregate productivity? I propose and implement a simple methodology that empirically identifies their separate effects on aggregate TFP and apply it to an analysis of the policy of industrial licensing in India. The licensing policy was notably reformed in the mid-1980s, and I take advantage of this policy experiment to identify the effects of the licensing regime. Using plant-level data covering this period, I find that the reform resulted in an aggregate TFP improvement of nearly 28% in the deregulated sector, and that the reductions in entry and output restrictions stemming from the reform contributed almost equally to this TFP gain