Abstract
This paper examines the role of the external institutional environment captured by effective state–business relations (SBRs) on firm performance. By effective SBRs, we mean a set of highly institutionalised, responsive and public interactions between the state and the business sector. We find that effective SBRs have had a discernible positive impact on firm productivity in Indian formal manufacturing over the period 1989–1990 to 2004–2005. We also find internal and external institutional factors are complementary to firm performance – smaller firms, firms in urban areas and firms in simpler organisational forms benefit more.
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