Drivers of firm growth: micro-evidence from Indian manufacturing

This paper investigates the determinants of firm growth for Indian manufacturing enterprises. The study uses the data obtained from the Prowess database, provided by the Centre for Monitoring Indian Economy (CMIE), covering the period 1991–2010. The study explores the growth of Indian manufacturing firms with respect to 1) its cross-sectional distribution, 2) its dynamics over time, and 3) its determinants. The cross-sectional distributional analysis exhibits high levels of heterogeneity in firm growth patterns, even across firms operating within the same sector, which increases over time. The inter-temporal dynamics observed with the help of transition probabilities matrices suggests that firm growth rates are not highly persistent in time, which is in contrast with the evidence from developed countries. It also reveals the coexistence of firms with very different characteristics and performance within sectors. Given the wide heterogeneity and non-persistent behavior of firm growth rates, this paper resorts to quantile regression analysis to identify the differential effect of regressors at different deciles of the conditional distribution.