Shoumitro Chatterjee | No Country for Dying Firms: Evidence from India

The Moynihan Institute’s program for Trade, Development and Political Economy welcomes Shoumitro Chatterjee from Johns Hopkins University.

Abstract: This paper identifies exit barriers as a new reason for India’s underdeveloped manufacturing sector. These barriers not only deter entry but also trap resources in unproductive firms. We document that Indian institutions generate such barriers and provide causal evidence of their effects. Using a dynamic model that separately identifies direct exit barriers from labor and capital adjustment costs, we f ind that exit barriers are quantitatively significant, particularly in low-performing states and labor-intensive industries. Our analysis yields three findings. First, reducing firing costs raises value added but reduces employment, whereas relaxing direct exit barriers increases both. Second, simultaneous reform of labor firing costs and direct exit barriers yields synergies. Third, sequencing matters: addressing direct exit barriers before labor firing costs preserves employment while improving efficiency. Finally, we show that exit subsidies are more effective at raising value added, while entry subsidies are more effective at increasing employment.

Co-authors:

Kala Krishna - kmk4@psu.edu
Department of Economics, The Pennsylvania State University and NBER

Kalyani Padmakumar - kpadmakumar@fsu.edu

Department of Economics, Florida State University

Yingyan Zhao: yingyan_zhao@gwu.edu

Department of Economics and the Elliot School of International Affairs, George Washington University

Shoumitro Chatterjee is an assistant professor of international economics. He is a research affiliate at the Centre for Economic Policy Research and a visiting scholar at the Carnegie Endowment for International Peace and the Indian Council for Research on International Economic Relations.

His research lies at the intersection of international trade, globalization, and macro-development, with a particular focus on the role of agriculture in economic development. His academic work has been published in leading journals, including the American Economic Review and the Quarterly Journal of Economics.

Chatterjee received a Ph.D. in economics from Princeton University in 2018 and was an INET Postdoctoral Fellow at the University of Cambridge during 2018–19. He earned a B.A. in economics from St. Stephen’s College in 2009, followed by an M.A. in economics from the Delhi School of Economics in 2011.

Prior to joining Johns Hopkins, he held faculty positions at Pennsylvania State University and Georgetown University. He also served as an economist in the Office of the Chief Economic Adviser, Government of India, during 2015–16.

He is the recipient of the International Economics Research Annual Award from EXIM Bank of India (2019) and was recognized by ThePrint in 2024 as one of India’s leading economic thinkers of the next decade.