Services Liberalization and Product Variety of Manufacturing Firms – Alina Mulyukova

Speaker

Alina Mulyukova (Kiel Institute)

Abstract

This paper investigates the effect of liberalization in the services sector on downstream manufacturing firms' product scope and the distribution of sales across products. I combine firm-level panel data for India with the services reform measure and exploit variation across manufacturing firms in their exposure to service inputs as well as time variation in services reform in a shift-share research design framework. My analysis yields that services liberalization significantly increased product scope of manufacturing firms. Looking at the characteristics of added products, I find that firms add products that are close substitutes to the core product, which leads to a within-firm cannibalization effect and a decline in the sales share of the core product. I document that service reforms reduce firms' fixed cost of product innovation, whereas having no effect on the variable cost. FDI in the banking sector seems to play the most important role for product innovation.

Room

Lecture Hall (A-032)