The author aims to develop a specific analysis of the relationship between firm profitability and firm growth in India. First, he will work on detecting any systematic relationship between these two variables empirically. If the data suggests that firm profitability robustly predicts firm growth, he will then disentangle and quantify the specific channels through which growth occurs. In particular the researcher will study three channels: (1) entry of new firms and reallocation, (2) innovation and introduction of new products, and (3) export-driven growth. If instead the data shows no evidence of a causal relationship between firm profitability and firm growth, the subsequent part of the study will focus on identifying the barriers that prohibit firm growth. To this end the author will develop a model of the interaction between input-level misallocation (e.g. resource misallocation due to financial constraints) and output-market misallocation (i.e. the distribution of mark-ups) and study how this interaction gives rise to a trade-off between input- and output-level misallocation.
This study will contribute to improving our understanding of the misallocation of resources that is commonly observed in the manufacturing sector of developing countries.
