DEPP working paper
This Working Paper is part of the Development Economics and Public Policy series
Productivity Measurement in Indian Manufacturing: A Comparison of Alternative Methods
Vinish Kathuria, Rajesh Raj S. N., Kunal Sen.
Abstract
Very few other issues in explaining economic growth has generated so much debate than the measurement of total factor productivity (TFP) growth. The concept of TFP and its measurement and interpretation have offered a fertile ground for researchers for more than half a century. This paper attempts to provide a review of different issues in the measurement of TFP including the choice of inputs and outputs. The paper then gives a brief review of different techniques used to compute TFP growth. Using three different techniques – growth accounting (non-parametric), production function accounting for endogeniety (semi-parametric) and stochastic production frontier (parametric) – the paper computes the TFP growth of Indian manufacturing for both formal and informal sectors from 1989-90 to 2005-06. The results indicate that the TFP growth of formal and informal sector has differed greatly during this 16-year period but that the estimates are sensitive to the technique used. This suggests that any inference on productivity growth in India since the economic reforms of 1991 is conditional on the method of measurement used, and that there is no unambiguous picture emerging on the direction of change in TFP growth in post-reform India.
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