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Market Structure Dynamics in Indian Industry



Can changes in industry structure be characterized by movements towards a long-run concentration ratio (CR)? This paper estimates an error correction model for 33 industries in India for the period 1974–85, using nonlinear estimation methods. The results indicate that structural change in India is composed both of significant changes towards the long-run CR and of significant changes of the long-run CR. The adjustment towards the long-run CR seems to be faster in India than in most Western studies. In spite of this, it is below 0.5 in most industries, indicating that even after 11 years, all the difference between actual and long-run CRs is not eroded and ‘excess’ market shares persist in most industries. Across industries, speeds of adjustment are higher in industries with high profit margins and lower in industries which are reserved for the public sector.