Calendrier du 01 mars 2023
Development Economics Seminar
Du 01/03/2023 de 16:30 à 18:00
Salle R2.01, Campus Jourdan
GORAYA Sampreet (Stockholm School of Economics.)
Product Demand, Misallocation and Firm Growth
This paper examines the impact of ethnic networks on product demand and firm growth in rural India. We use changes in regional rainfall intensity as a proxy for local demand shocks and find that demand is segmented along caste lines. We find that consumers in historically disadvantaged communities experience a positive income shock due to good rainfall and that this translates into higher per-capita consumption for them. Further, this demand shock translates into higher revenue for the firms owned by members of the same caste category, relative to others. In terms of input misallocation, LC firms exhibit 16% higher MRPV (marginal revenue product of intermediate input) than HC firms. The demand shock reduces this cross-caste dispersion in MRPV by 5%. We rationalize these observations using a framework of cash-flow based borrowing constraints for firms. The paper suggests, in the short run, that input misallocation and borrowing constraints for firms are caused by limited product demand, rather than the other way around.