Land Market Liberalization and Firms: Theory and Evidence from India

This paper examines the impacts of land market frictions on resource allocation and productivity growth in manufacturing firms, leveraging the staggered repeal of the Urban Land Ceiling and Regulation Act (ULCRA) in India as a natural experiment. The ULCRA set limits on the amount of land that could be held by a firm, and prohibited the transfer of land and buildings. Our study finds that the repeal of the ULCRA significantly reduced land market frictions, leading to increased landholdings and transactions among affected firms, thereby enhancing their productivity through product innovation. We develop a model of creative destruction with heterogeneous firms subject to land constraints to quantify their impacts on the level and growth of productivity.

With Dian Jiao and Marshall Mo.