The effectiveness of ’in-market’ and ’out-of-market’ liberalization policies. Evidence from Indian produce markets

Do market liberalization policies result in more efficient markets, increase competition and change market outcomes for the trading parties? In this paper I examine two types of liberalization policies, those aimed at increasing competition and efficiency within the existing regulated market, and those allowing competing channels outside of the regulated system. Studying a marketing channel reform in Indian agricultural produce markets, which consisted of both ‘in-market amendments’ and ‘out-of- market amendments’ adopted in different combinations and timing by the Indian states, I evaluate the effectiveness of the reforms in improving the bargaining power of farmers vis-a-vis the licensed traders in the regulated markets. I find an average 3 % overall increase in prices obtained by farmers following the reform in total, and 12 % for storable crops. While apparently much harder to pass, in-market reforms appears to be driving most of the change while the effect for out-of-market reforms is mostly insignificant.