Indian Manufacturing Productivity: What Caused the Growth Stagnation before the 1990s?

This article addresses the question of why productivity growth in Indian manufacturing was slow in the pre-reform period and analyzes how economic reforms in the 1990s accelerated productivity growth. The answer lies in two subtle but important distortion-inefficiency mechanisms, which affected productivity growth by distorting intermediate input allocation. The interaction of quantitative restriction policies and inflexible labour laws resulted in lower than optimal materials per worker usage. The combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered productivity growth further. Using a panel dataset on Indian industries, this article finds widespread underutilization of materials compared to labour until recently, and this sub-optimal materials per worker usage lowered productivity growth.productivity, growth, materials, labour, quotas, labour laws, public policy, India

Indian Economy - TFP or Factor Accumulation: A Comprehensive Growth Accounting Exercise

Constructing data series from various sources, I do comprehensive growth accounting for the Indian Economy. Without accounting for human capital, total factor productivity differences over time accounts for 48% to 69% of output variation. TFP growth accounts for 35% to 70% of the total GDP growth between 1960 and 2004 depending on measure of human capital. Even after using the Mincer wage regression coefficients, TFP growth still remains significant in explaining the output growth. Starting from a modest rate in 60s Productivity growth dipped and became negative in 70s. This productivity growth rate started accelerating in 80s (much before the reform-period of early 90s) and is estimated between 3% and 4.5% in 2000s. Variance decomposition of growth rates show negative relation because input and output growth accelerated in different periods. Capital-Output ratio seems to transition from one-steady state to another. Capital-per-Worker has reached a constant rate of growth. Accounting estimates, decompositions and period-wise trends point toward Indian growth being triggered by overall efficiency improvement (TFP) rather than input accumulation growth.Growth Accounting, Indian Economy, Mincer Regression, Variance Decomposition, TFP, Factor Accumulation

Pre-reform Conditions, Intermediate Inputs and Distortions: Solving the Indian Growth Puzzle

This paper answers the puzzling questions that why under the similar set of economic conditions service sector in India grew while manufacturing could not and how economic reforms in 1990s accelerated the productivity growth. The paper provides a very innovative and convincing explanation. Two subtle but important distortion-inefficiency mechanisms, which work through distorting the intermediate input allocation, are identified in the paper. Interaction of policies of quantitative restrictions and inflexible labor laws resulted in lower than optimal materials per worker usage.Combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered the productivity growth further. Using panel data on Indian industries, I find underutilization of materials compared to labor until recently. This sub-optimal materials per worker usage lowers productivity growth. Productivity estimates are negatively related to labor growth and positively related to materials growth. Real wages and labor productivity are negatively related to materials inflation and this relationship breaks down after the capital market reforms in 1990s. Since these mechanisms work through intermediate inputs, service sector productivity is not affected as adversely. Estimates show that after 1990s firms have started oversubstituting materials and capital relative to labor, which can explain the jobless growth in Indian manufacturing.License Quota. Labor Laws. Price Change and Factor Substitution. Credit Constraints. Intermediate Inputs. Distortions and Productivity Growth

Comparing and contrasting growth of India with China

This paper compares and contrasts the growth experience of India with that of China. Chinese economy has grown at much faster rate than Indian, but India seems to be catching up. The average estimated productivity growth rate of China (5.9%) is more than double that of India (2.4%). The difference between same-deflator average growth rates of India and China reduces significantly (by as much as 70%) for manufacturing sector. While increased growth of spending are accompanied by increase the growth rate of productivity in China, in India the correlation is negative. For India, service sector growth trend is more strongly correlated with government spending and infrastructure.

Measuring Quality Change due to Technological Externality in Multi-Feature Service Bundles

Technological innovation, externalities and network effects keep shifting the preference parameters in cellular telecommunication service sector. The paper suggests a framework to model these changes.It notes two channels that affect the service prices (in possibly opposite ways). In each corresponding period, consumer with lower reservation prices are shopping for the services. But these reservation prices are going up due to complementarity/ network effects. Under some reasonable assumptions on industry and cost structure, market data can be used to identify these changes. A price index is suggested that decomposes service bundle price changes into the change in price for same-quality of service and change in quality of the service bundle. Some interesting properties of these indexes are also discussed.

Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy

This paper considers an economy with skilled agents exchanging their services. Using Cobb-Douglas preferences, the paper shows that there exists an optimal (average welfare maximizing) skills' distribution. This optimal distribution is independent of productivity and is welfare equalizing. If the skill-distribution is not optimal, then some agents are better-off than others. In such a scenario, migration in some sectors is average-welfare improving while inviting skilled-agents in others reduces average welfare. "Productivity increase of worse-o sector" without changing the overall skills' composition of economy increases the wage gap.

Optimal Allocation of Physical and Skills Capital in Services Production

”Software/ Skills” capital differs from usual physical capital (or hard- ware) in the sense that it is non-rival and can be replicated at a cost (e.g. patent fee or training costs). A basic model of production is developed which involves production sector and training or replication sector (which produces skills). Using a 2 period production model, the paper finds that in sectors where the objective is output maximization (e.g. government services or health care) - There exists an optimal ratio of investment in physical capital and in- vestment in skills-capital depending on the state of technology and already existing stocks. In a capital-rich economy, a higher proportion of skills is allocated to pro- duction sector and a higher proportion of investment is allocated to training sector compared to capital-scarce economy . During high-investment periods, a higher share of investment goes to physical capital while a lower share of skills goes into production sector (compared to low-investment period). Initial stock of skills, does not have any affect on these allocation-ratios.

Benchtop Centrifuge for Materials Science

The Benchtop Centrifuge was designed to serve for research purposes within theMechanical Engineering Department at Santa Clara University. The prototype has been completely assembled and is functioning to the desired specifications of applying up to 1000 g’s of force for over 4 hours. The current uses are anticipated for separation of particles within materials for material processing and testing. The overall systemdesign has been adapted froma legacy project within the University. Various tests were conducted in order to ensure safety and usability of the system. Through Abaqus analysis and drop-test experiments, it was found enclosure itself can withstand an impact from a bucket at max-speed. The a SolidWorks analysis, the natural frequency of the enclosure was found to be 104.46 Hz, which translates to a rotational speed of 6267.6 RPM; this is well above what the system will be operating at. The team hopes that future students and faculty will be able to expand their current research through the use of this system

Comparing Bank Lending Channel in India and Pakistan

This paper investigates the presence and significance of bank lending channel of the monetary policy transmission in India and Pakistan using the Structural Vector Auto Regression (SVAR) approach. The results of econometric analysis support the presence of a significant bank lending channel in these countries. Changes in the monetary policy instruments affect the credit variable (private sector claims) which in turn transmits the shocks to the real side of the economy, i.e. output and prices. The output returns back to initial level in long run, while the effect of monetary policy changes on prices are persistent. I also find that compared to the bank lending in other developing countries the channel in these countries is different and more vital. Another finding is that apart from interest rates, money also seems to play an important role in these economies and its shocks are significantly transmitted to the real macroeconomic activities through changes in the credit variable.

Looking beyond the methods: Productivity Estimates and Growth Trends in Indian Manufacturing

Studies on Indian manufacturing have been unable to provide consistent estimates of productivity and its growth rates. This paper performs detailed and exhaustive set of accounting exercises for the period 1970-2003 using production function, index number and envelopment analysis methods. TFP growth rate average is 1.1% for both gross output based and net value added based measures. In gross output production, share of materials is 0.6, much larger than the capital and labor shares. Share of capital is constantly increasing. For the period just after the reforms (1991-1997), input growth jumps but TFP growth is negative. But after 1998, the trend reverses and output grows slowly despite negative input growth due to large TFP growth. Aggregated TFP growth rates (Domar-weighted and Fisher index) also follow the same pattern; showing upward trends after mid- 1990s. There are no significant differences in TFP growth rates among different-sized firms. After the reforms, TFP growth increases substantially in the public corporations. Productivity transition seems to be random across different (3-digit NIC code) industries. Industries with focus towards services experienced higher productivity growth than others. These results show that the lack of productivity growth was the reason for unimpressive performance of Indian manufacturing earlier.Productivity Growth. Indian Manufacturing. Tornqvist Index. Reallocation. Envelopment and Frontier Analysis. Value-Added. TFP Decomposition. Domar Aggregation