Effects of Deinstitutionalization: Evidence from the Indian Textile Industry

In this paper, we study the effects of deinstitutionalization and examine how institutions at multiple levels interact with one another in influencing firm-level outcomes. Our empirical context is the global textile industry. The global trade in textiles was governed by Multi-Fibre Agreement (MFA) since 1974, which provided for bilaterally negotiated agreements on import quotas by developed countries. MFA ceased to exist with effect from January 1 2005 after the trading nations became members of World Trade Organization (WTO). We theorize on how the termination of a global institution such as MFA interacts with local institutions such as affiliation to business groups and policy initiatives at the national level. We test our predictions using a comprehensive sample of both publicly listed and private firms in the Indian textile sector. Results from a panel of exporter firms during the 2001-2010 period show that firms affiliated to business groups lose global market share post-MFA, but improve their profit...