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surprisingly high especially for the Drugs and Pharmaceutical sector highlighting the
high dependence on imported inputs.

Table 4. Degree of Vertica

Integration___________________________________________

All sample

________Obs Mean Std. Dev.

Drugs &
Pharmaceutical

Obs Mean Std. Dev.

Electronic &
Electrical Goods

Obs Mean Std. Dev.

Garment &Textile

Obs Mean Std. Dev.

IE

731 0,045   0,147

209 0,066   0,152

121 0,013   0,062

401 0,043   0,160

IE_sh

307 0,968   5,601

76 2,500   7,894

31 0.176   0.361

200 0,501   4,852

5. Empirical Methodology

From this, the next step will be to analyze the correlation between the trade practices of
the firms in the sample and their performances. In doing this we follow a standard two
step procedure. Firstly, we obtain productivity estimates. Subsequently, such measures
are regressed on the trade indexes constructed and on sets of firms’ characteristics.
Bernard and Jensen (1999) and Aw, Chung and Roberts (2000), among others, adopt this
two step approach in evaluating performance of exporters respectively for the United
States and for Taiwan and South Korea.

5.1 Productivity

Our measure of firm level performance is Total Factor Productivity calculated as
difference between the actual output and the one predicted by means of production
function estimations23.

Under the assumption of Hicks neutral Cobb Douglas technology we obtain the
following logarithmic approximation of the production function, for firm i , in industry j,
at time t:

23 Instead of TFP, an alternative measure of performance traditionally used is labour productivity.
However as highlighted also by Sachs et al. (1999), given the country’s labour regulations, Indian firms
often problems of over-staffing and this would bias the performance measure.

13



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