Incumbents and Protectionism: Firm-level Evidence from India

Abstract

In this paper, we focus on the concentrated control of corporate assets and the ownership of incumbent firms to examine the selective removal of foreign entry restrictions in India. The results show that the probability of entry deregulation is negatively correlated with industry concentration and in industries where a few large firms are highly profitable. The data also suggest that the government is significantly less likely to relax entry barriers in industries with state-owned enterprises. Moreover, business group presence does not appear to influence the probability of entry deregulation in industries with no state-owned enterprises. The evidence confirms that entry barriers are designed to protect incumbents and suggests that firm level data provide a useful tool to examine the relative influence of different groups of incumbents in the regulatory process.