Understanding Competition and Growth in India’s Construction Brick Industry

Principal Investigators: Daniel E. Keniston (Yale University)
Research Team: Thomas van den Aarssen, Vaishali Venkatesh Prasad, Rupika Singh
LEAD Centre: Centre for Microfinance (CMF)
Focus Area: Livelihoods
Project Geography: Uttar Pradesh, Madhya Pradesh, Karnataka
Partner: The Energy & Resources Institute (TERI)
Status: Ongoing

Background:

Many industries in India—and all developing countries—contain a wide variety of firms with diverse characteristics. Even among firms making homogeneous goods, there is large variation in firm size, productivity, dependence on external finance, and technology use. This variety raises fundamental questions:

– Why do unproductive firms remain in business, when more productive firms can produce the same goods for less?
– How does the existence of small, informal firms affect competition and investment by large, modern firms?
– Would better access to credit and improved technology lead to increased output within the firm and more efficient competition across competing firms?

Answering these questions is crucial to policy on economic growth and employment. Research on productivity and competition in India has generally taken either a broad methodology, covering all sectors, or a narrow one, focusing on a single establishment. This research takes a new approach: focusing on a single industry, brickmaking, and collecting detailed data both on the market itself and the individual firms. Bricks are a homogeneous good yet their heavy weight makes long distance transport rare; competition can thus be studied in many different, independent brick markets. This study introduces random variation in technology through access to credit for technology upgrade and consultation in a select number of firms across local brick markets. The impacts of access to technology are examined for the treated firms and competing firms in the same market.