Research

Research Interests

Primary: International Trade, Innovation, and Development Economics
Secondary: Finance

Working Papers

Import Competition, Knowledge Diffusion, and Innovationwith R. AhsanR&R, Journal of Urban Economics

Abstract

Successful innovation depends on the stock of knowledge that innovators have access to. Yet, empirical analysis of the impact of trade on innovation abstracts from such knowledge diffusion. We address this gap in the literature by drawing upon the universe of Indian patent applications between 1995 and 2006, which we map to a spatially granular level. We use this original dataset to provide the first evidence of how knowledge diffusion shapes the innovation response of firms facing import competition. We find that, on average, import competition lowers innovation. However, firms that are close to other patenting firms (knowledge access) innovate more: a firm with the 80th percentile knowledge access increases its patents by 3.28% after experiencing a 10% increase in imports. These results suggest that the pre-existing spatial distribution of innovators is an important determinant of how import competition will affect overall innovation.

War, Geopolitics, and Trade Diversionwith A. S. Chakrabarti and A. DuttSubmitted

Abstract

Wars - and more broadly, geopolitics - affect international trade flows, often by changing trade destinations and partners. While export destination choices by countries affected by a war are more readily observable, such evidence for firms from non-participating countries is rare. Following the onset of the 2022 Russia–Ukraine war, products like leather experienced a war-induced demand expansion from Russia. We use bills of lading data for India to show that leather exporters redirected their sales to Russia relative to Oceania, South-East Asia, Africa and the Caribbean while leaving the US and European markets unperturbed. Sales to Russia nearly doubled due to both quantity and price increases, driven by incumbent exporters exporting non-sanctioned products using air routes more intensively. Effects were significantly higher in the first six months of the war, but persisted for one and a half years suggesting a longer term trade diversion phenomenon. Similar export patterns of other war-induced products such as pharmaceutical (especially, surgical) and food serve as evidence of external validity.

Ethnic Politics and the Distributional Effects of Trade Liberalization: Evidence from Indiawith A. Aneja and S. K. RitadhiSubmitted

Abstract

Can globalization contribute to the rise of identity politics? We examine this question in the context of India's 1991 trade liberalization episode, and study how tariff reforms contributed to the electoral success of caste-based parties during the 1990s. Combining industry level tariffs with pre-reform employment shares in a shift-share design, we find that regions facing larger reductions in trade protection witnessed increased political support for political parties committed to the representation of marginalized caste groups. Increases in both caste-based party vote share and total seats are concentrated in areas that are more rural, lower skilled, and have larger concentrations of voters from marginalized caste groups. Examining mechanisms, we find tariff reforms to have widened the caste earnings gap, in large part due to the adverse consequences of tariff reforms falling on agricultural workers – a segment of the labor market in which marginalized castes are heavily over-represented. The empirical findings are thus consistent with the explanation that the adverse effects of trade liberalization were disproportionately borne by historically marginalized citizens, who in turn voted for ethnic parties advocating their policy interests in targeted.

R&D Tax Credit and Product Quality vs. Scopewith S. Mathur, S. Sircar and R. VermaSubmitted

Abstract

Do firms with heterogeneous in-house R&D capacity respond discordantly in terms of product development to an industrial policy aimed at boosting R&D expenditure? We utilize a phased introduction of a R&D tax credit policy started in 1998 by the Indian Govt. which was aimed at firms with in-house R&D units in certain groups of industries. We find that the policy led to an increase in R&D expenses for all firms, but the effect on product development is quite different. Small and medium-sized firms spend their new R&D investments to expand product scope, while large firms invest in improving the quality of the products. These effects are largely driven firms in industries with high cannibalization elasticity. We rationalize our findings using a nested multi-product firm model in which we compare the within-firm demand cannibalization from quality and scope improvements. Lastly, our results show significant welfare gains as the aggregate price index decreased by about 93%. To our knowledge, ours is one of the first to show that the R&D tax credit policy can promote industrial development through gains from increased product quality and variety.

When a Protectionist Trade Policy turns into an Industrial Policy: Evidence from Indiawith A. de PirroSubmitted

Abstract

Technical Barriers to Trade (TBTs) can serve as powerful protectionist tools, yet it remains unclear whether they benefit domestic firms. This paper studies India's 2001 regulation mandating testing and certification for vehicle components. Using detailed firm level data (1997–2005) and exogenous variation in exposure, we document three main effects: (i) increased technology adoption, driven by R&D and technology transfer; (ii) upgrading of input mix toward higher-quality inputs while maintaining existing product lines at higher value; and (iii) gains in market share, export expansion, and higher Revealed Comparative Advantage (RCA). All these effects are driven by import-dependent automotive firms. However, increase in prices and markups, on the other hand, suggests that part of the performance gain is not necessarily efficiency-enhancing. To our knowledge, we are among the first to emphasize that TBTs can act as de-facto industrial policy.

Import Competition and Heterogeneous Responses of Bankswith S. K. RitadhiSubmitted

Abstract

How do lenders respond to import competition? Using a novel bank-firm loan level database matched with balance sheet data, we study this question in the context of India following China's accession to the WTO in 2001. We find strong evidence of endogenous financial constraints and heterogeneity in lender responses to higher import competition. Private banks with portfolio of loans to firms in high exposure sectors drop credit supply by around 14% with no average effect for public-sector banks. This null effect, for public-sector banks, turns negative as when firms having credit relationships of less than 5 years highlighting that length of credit relationships also matter as how banks respond to external shocks. This drop in credit supply is driven only by intensive margin. Banks with a larger share of loans to firms in high exposure sectors suffer a rise in their NPAs, drop in profitability, and external borrowing thereby reducing their credit supply. The drop in credit supply also affects real outcomes of firms with economically meaningful implications in terms of sales, use of production factors (capital and raw materials), and stock of assets. We emphasize that real sector shocks can have heterogeneous spillover effects to the financial sector based on ownership of banks and length of banking relationships.

The Unintended Consequences of a Creditor Rights Reform: Product Creation and Consumer Welfarewith V. Tyazhelnikov

Abstract

How does access to finance shape the products firms bring to market and, ultimately, consumer welfare? We study this question using India's 2002 SARFAESI Act, a major creditor rights reform, and linked firm–bank and firm–product data. Stronger creditor rights reallocate secured credit non-monotonically across firms: borrowing expands among firms in the middle of the pre-reform tangibility distribution but falls among the most collateralized firms. Firms whose credit constraints are relaxed respond by going wide rather than deep. They expand product scope by about 9%, introduce more products, and invest more in R&D and machinery. Quality upgrading is concentrated in newly introduced products, with little evidence of improvements among incumbent varieties. We develop a model of credit-constrained multi-product firms that jointly choose product scope and the quality of new varieties. Quantifying the model implies a consumer gain equivalent to a 0.8% decline in the quality-adjusted price index, with roughly one-third of the gain coming from the higher quality of new products and the remainder from greater variety. Our results show that financial institutions shape consumer welfare not only through how much firms invest, but through which products reach the market and the quality at which they enter.

Input Tariffs, Roads, and Female Employment: Evidence from Ethiopiawith W. Gebre

Abstract

We study how trade liberalization and transport connectivity jointly shape women's employment in a low-income economy. We combine Ethiopia's manufacturing census (1996–2010) with industry level input tariffs and geo-referenced road network measuring access to the country's main international trade gateway. Input tariff reductions increase both the share and number of female workers, with stronger responses in better-connected locations. At mean road connectivity, a 10% tariff reduction raises the female employment share by 1.5 percentage points and the number of female workers by 8.4%. This is driven by greater female hiring rather than displacement of male workers. The response is stronger where female labour is underutilized, among firms with greater female ownership, and in initially female-intensive industries, pointing to both supply- and demand-side channels. Tariff reductions also increase female employment in informal manufacturing, but roads do not amplify this response. Instead, female ownership responds more strongly in poorly connected locations, pointing to distinct margins of adjustment: wage employment in better-connected markets and self-employment in less-connected ones. Overall, our results underscore that domestic transport connectivity shapes both the gender incidence of trade liberalization and how women benefit from it.

Publications

Can a Trade Policy Change Gender Equality? New Evidence from Chilewith U. Banerjee and L. CastroJournal of International Economics, 2025, 157: 104143

Abstract

Do firms reorganize gender composition of their employment in response to trade shocks? Using novel data on gender composition of employment across several occupational groups for Chilean manufacturing firms matched with customs data for 1995–2007, a developing country with low gender equality, and utilizing the 1998 Chile–Mexico Free Trade Agreement (FTA) as the quasi-natural shock, we document the first evidence that the share of female white-collar workers increased by 10% for new exporters exporting to Mexico due to the FTA. This happened through a substitution effect from male to female high-skilled workers due to higher use of technology (both domestic and foreign), high-skilled non-production tasks, and reduction in discrimination. We also show that this increase in this share of white-collar female workers is due to a demand- rather than supply-side effect. Overall, we emphasize that trade policy can play an important role in addressing the gender gap in employment.

Chinese Import Competition and Prices: Evidence from Indiawith M. Henry and R. SinghOxford Bulletin of Economics and Statistics, 2024, 86(6): 1484-1510

Abstract

How do output prices respond to trade shocks? Using detailed firm-product level data on sales and quantity between 1996 and 2007, we study the causal effect of Chinese import competition on prices for Indian manufacturing firms. We find that Chinese import competition induces a significant decline in firm-product prices. A 1 percentage point increase in the Chinese import penetration ratio reduces firm-product prices by 3.5%. Further, this decline in prices is driven by a decline in markup, conditional on costs, as opposed to the pass through of cost savings to prices – providing evidence for pro-competitive effect. This decline in prices and markup is less pronounced for firms owned by Business Groups compared to stand-alone, privately owned firms. We also document a large decrease in marginal costs and an increase in markup with no significant effect on prices for firms on account of increased access to imported Chinese inputs.

Import Competition, Formalization, and the Role of Contract Laborwith R. Singh and V. SoundararajanWorld Bank Economic Review, 2024, 38(4): 708-740

Abstract

Does higher import competition increase formalization and aggregate productivity? Exploiting plausibly exogenous variation from Chinese imports, we provide empirical causal evidence that higher imports increases the share of formal manufacturing enterprise employment in India. This formal share increase is due to both the rise in formal-enterprise employment driven by high-productivity firms, and a fall in informal-enterprise employment. The labor reallocation is enabled by the formal firms' hiring of contract workers, who do not carry stringent firing costs. Overall, Chinese import competition increased formal-sector employment share by 3.7 percentage points, and aggregate labor productivity by 2.87 percent, between the years 2000–2001 and 2005–2006.

Import Competition, Labour Regulations, and Firm Outsourcingwith D. Mitra and A. SundaramJournal of Development Economics, 2024, 168: 103272

Abstract

Using unique information on firm level domestic outsourcing of manufacturing jobs by Indian firms, we propose two channels and their interaction as determinants of the fragmentation of production: import competition and labor market regulation. We find that greater import competition from China is associated with a significant increase in domestic outsourcing of manufacturing jobs — a 10-percentage point increase in the import penetration ratio leads to a 11%–14% increase in the ratio of outsourcing expenses to the wage bill of a firm. This effect is driven by multi-product firms operating in states with pro-worker labor laws. We find a corresponding increase in the likelihood of sub-contracting among informal sector firms. Our results are consistent with a model where forward-looking firms outsource more in response to an increase in import competition, when there are future firing costs that can be avoided through such outsourcing. We thus are the first to highlight that labor market regulation and its interaction with international trade can determine the organization of production. Our findings have significant development implications that take the form of movement of manufacturing production towards the informal sector (and possible subsequent impoverishment of workers) as a consequence of a major trade shock.

Bank Ownership and Firm PerformanceEconomica, 2024, 91(361): 238-267

Abstract

Does a bank's ownership matter for the performance of a firm to which it is connected, especially in the event of a crisis? I study this question through the effect of the 2008–9 crisis on Indian manufacturing firms to provide evidence on a new channel that can matter significantly for a firm's performance—bank ownership. I find that firms connected to private (domestic and foreign) banks earned around 10% and 25% less from sales and exports, respectively, during the crisis, as compared to firms having banking relationships with public-sector banks. This happened as private banks were affected differentially in terms of credit supply from the Central Bank and withdrawal of deposits. Firms connected to private banks also laid off more workers, and imported fewer capital goods. Finally, these effects are significant across the size distribution of the firms (except the smallest firms), for firms producing intermediates, and about 40% less for firms that belong to a business group.

Cross-border Environmental Regulation and Firm Labor Demandwith A. Chakrabarti and C. ChatterjeeJournal of Environmental Economics and Management, 2023, 117: 102753

Abstract

In 1994, due to environmental concerns, Germany banned a chemical called ‘Azo-dyes’, a primary input for the leather and textiles firms in India (a key exporter). Exploiting this as a quasi-natural experiment, we examine the effects of this cross-border regulatory change on labor compensation, particularly managerial, for both Indian upstream (dye-producing) and downstream (leather and textile) firms. We find that the regulation increased compensation of managers by 1.3%–18% in dye-producing firms compared to other chemical firms. This is due to the combination of changes such as investing in R&D, product churning, import of high-quality intermediates, due to the ban, which led to this change in within-firm labor composition. This increase in overall compensation is driven only by fixed component (wages), consistent with the effects of a long-run shock. We find no such effects for downstream firms. We believe, our study is one of the first to show that just like tariff, non-tariff barriers (NTBs) can also significantly affect within-firm labor composition.

Intellectual Property Regimes and Wage Inequalitywith S. Bhattacharya and C. ChatterjeeJournal of Development Economics, 2022, 154: 102709

Abstract

We use The Patents (Amendment) Act, 2002 in India as a quasi-natural experiment to identify the causal effect of higher incentives for innovation on a firm's compensation structure. We find that stronger intellectual property (IP) protection has a sharper impact on the demand for managerial skill for technologically advanced firms. Firms that were a-priori above the industry median (in terms of technology adoption, more so for R&D expenditure) witness a rise in the share of managerial compensation by 1.3%–8.3% higher than the rest. This effect is completely driven by firms between 5–8th decile with no effect on firms below the median or at the very top of the technological ladder. This observed “snail-shape” in the firms' response to the IP shock is rationalized in a model where firms within an industry compete for patents by investing in managerial inputs. The observed increase in wage inequality can partly be attributed to a stronger performance pay for high-tech firms. Associatedly, high-tech firms invested more in technology adoption, started to produce more product varieties at higher quality, and filed for more product patent claims.

Chinese Competition and Product Variety of Indian firmswith M. HenryJournal of Comparative Economics, 2019, 47(2): 367-395

Abstract

Using detailed firm-product-year data across manufacturing industries in India, and exploiting the exogenous nature of China's entry into the WTO in 2001, we investigate the link between the impact of import penetration from China on the product variety of Indian manufacturing firms. We find: (i) robust and significant effects of product drop, with the effect coming only from competitive pressure in the domestic market; (ii) robust evidence of product drop or ‘creative destruction’ only for firms belonging to the lower-half of the size distribution; (iii) firms drop their peripheral/marginal products and concentrate on the core ones; and (iv) the result is strongest for firms producing intermediate goods. For an average Indian manufacturing firm, a 10 percentage point increase in India's Chinese share of imports in the domestic market reduces the product scope of firms by 1.7–4.4%. In contrast, we find positive effects on product scope when firms are importing intermediate goods. We also find evidence of significant productivity effects and within-firm factor reallocation. Our results are consistent to a battery of robustness checks and IV estimation.

Input-trade Liberalization and the Demand for Managers: Evidence from Indiawith O. RavehJournal of International Economics, 2018, 111: 159-176

Abstract

Can input-trade liberalization increase the demand for managers? Imported inputs are an important source of technology inflows. Previous research on the implications of imported inputs overlooked their potential effect on the demand for managing the new incoming knowledge. Adopting the case of India, this paper presents a first empirical attempt to fill this gap. Using detailed firm-level data that uniquely distinguishes between the compensations of managers and non-managers, and exploiting the exogenous nature of India's Eight-Plan trade reform, we investigate the potential causal link between input-trade liberalization and the demand for managers relative to non-managers. We find that a decrease in input tariffs increases the relative demand for managers, primarily in domestic firms that use the imported inputs to produce intermediate goods. Specifically, a 10% drop in input tariffs induces, on average, a 1–1.5% increase in the compensation share of managers, manifested via increases in both their number as well as average wages and bonuses. These patterns are: (i) observed across the firms' size distribution; (ii) applicable for both exporting and non-exporting firms; (iii) stronger in family-run firms that operate under flexible labor market regulations; (iv) relatively more dominant in the short-run. In addition, we show that unlike changes in input tariffs, import competition does not affect the relative demand for managers.

The Great Trade Collapse and Indian FirmsWorld Economy, 2018, 41(1): 100-125

Abstract

The collapse in global trade during the 2008-09 crisis has been widely studied using the developed nation(s) data. I use firm-level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the U.S. and the E.U.; the effect being significantly higher in case of the U.S. Results assert that 1% increase in the exposure towards the crisis-affected zones (the U.S. and the E.U. combined) reduces an average Indian manufacturing firm's export earnings by 1.17-1.36%; (b) trade in consumer non-durables and durables are the two most affected sectors; impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008-09 crisis, only affects the high-exposure industries. My results are robust to IV analysis and a variety of checks.

Environmental Standards, Trade and Innovation: Evidence from a Natural ExperimentEnvironment and Development Economics, 2017, 22(4): 414-446

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Abstract

Exploiting a natural experiment involving the imposition of a technical regulation by Germany on Indian leather and textile industries in 1994, a firm-level data set is used to study the trade, adaptation and discontinuity effects and how they vary by firm size. It is found that: (a) regulation significantly increases the export revenues of a firm through use of new technology and high-quality imported raw materials – indicating a possible signalling effect; (b) this gain is concentrated only on the upper half of the firm size distribution, i.e., in the 3rd and 4th quartiles; (c) use of imported raw materials significantly explains low exit probabilities of a firm; and (d) there is evidence of a sorting effect – regulation significantly affecting the operation of small firms.

Does Environmental Regulation Indirectly Induce Upstream Innovation? New Evidence from Indiawith C. ChatterjeeResearch Policy, 2017, 46(5): 939-955

Abstract

Exploiting a quasi-natural experiment, which involves the imposition of a ban by Germany in 1994 on an input (‘Azo-dyes’) used by the Indian leather and textile industries, we estimate the indirect impact of the environmental regulation on innovation activities of upstream (dye-producing) firms in India and examine how it varies by different firm characteristics: size and ownership. We find robust evidence of a significant increase (11–61%) in innovation expenditure for the dye-makers in response to the ‘Azo-dyes’ ban. Additionally, we find: (i) increase in technology transfer to the tune of 1.2–2.5 times more than that of internal R&D; (ii) increase in innovation expenditure with firm size; (iii) domestic firms investing more in technology transfer as compared to R&D, whereas foreign firms only undertaking the latter and (iv) decrease in investments towards innovation by downstream firms, thereby pointing towards a possible substitution effect in aggregate innovation by upstream firms. Our results are consistent with a variety of estimation methods and robustness checks.

Judicial Quality and Regional Firm Performance: The Case of Indian StatesJournal of Comparative Economics, 2016, 44(4): 902-918

Abstract

Higher quality institutions help a firm to invest in institutional-dependent inputs, which might affect a firm's performance. I use data for Indian manufacturing that matches state-by-state firm-level data with state-by-state data on particularly important institution – Judicial quality. Results show that judicial quality is a significant determinant of higher firm performance – both for exports and domestic sales. My most conservative estimate suggests that a 10% increase in judicial quality of a region helps to increase the sales of a firm by 1–2%. I explicitly control for the ‘selection’ effect by using a two-step Average Treatment Effect (ATE) procedure. The results also support my initial findings. My results are robust to a battery of robustness checks.

Does Openness Affect Inequality? A Case Study for Indiawith A. BaruaReview of Development Economics, 2010, 14(3): 447-465

Abstract

This paper examines the impact of economic liberalization on interregional inequality in India. It has been observed in many studies that interregional inequality in India has been steadily increasing over time. This paper is a further confirmation of this result. We have tried to locate the cause of rising interregional inequality within the production structure of the economy and observed that it is positively and systematically related to the cross-regional inequalities in agriculture and manufacturing. This systematic relationship has further been examined from a structuralist viewpoint to unravel the factors determining manufacturing production across regions where we have found that trade openness is the key factor determining the manufacturing share in income across the regions. Our further enquiry into manufacturing and trade patterns has shown that the Herfindahl index of concentration has been increasing over time on both counts. This result, along with the findings of the structuralist model about disproportionate growth of manufacturing across regions, provides an explanation of the cause of rising interregional inequality in India.

Work in Progress

GST and Organization of Productionwith Yogeshwar Bharat

When Artificiality Kills Originality: Evidence from the Indigo Patent Shockwith A. de Pirro

Bank Entry, New Loans, and Misallocationwith N. Mitra

Crowded at Home, Constrained Abroad: Global Trade Linkages and Local Exporter Clusterswith Anindya Chakrabarti, Avi Dutt, and Shubhangi Sahai

When the Rains Fail: Climate Shocks and Firm Productivity in Ethiopiawith Wondatir A. Gebre and Lorenza Rossi

Mechanization and Genderwith R. Ahsan and F. Sohail

Technology Adoption, Exports, and Household Welfare: The Case of Bt Cottonwith U. Paul

Female Leadership and Corporate Social Responsibility: Evidence from a Policy Mandate in Indiawith T. Chakraborty and N. Sangwan

Divided by Skill, Driven by Competition: Outsourcing Decisions at the Firm Levelwith L. Castro and V. Tyazhelnikov

Trade Reform, M&A Activity, and Family Firmswith H. Yang

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