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An analysis of economic growth in India Gupta, Abhay

Abstract

This dissertation is an empirical study of economic growth in India over the period of 1960-2004. The objective of the first chapter is to provide robust and reproducible period-wise growth estimates for India. Detailed growth accounting shows that without accounting for human capital, total factor productivity (TFP)differences over time account for 48% to 69% of the output variation. If we include the role of education, TFP growth accounts for 35% to 70% of the total GDP growth between 1960 and 2004. Starting from a modest rate in the 1960s, productivity growth dipped and became negative in the 1970s. This productivity growth rate began accelerating during the 1980s and it grew at an average rate of around 3% in the 1990s. Chapter 2 calculates a large set of productivity growth estimates using the Annual Survey of Industries data. The results show that even though the net-value-added for all registered manufacturing grew at around 4.4% per year, the average yearly TFP growth rate was only 2.2%. In the sub-period of 1991-1997, input growth jumped but TFP growth became negative. But after 1998, the trend is reversed and output grows because of positive and large TFP growth in spite of the moderating input growth. Production function estimates show that in gross output the share of materials is 0.6, much larger than the capital and the labor shares. “Public corporations” experienced significant TFP growth after the reforms. The last chapter provides an explanation for the sluggish performance of Indian manufacturing before the reforms. The interaction of quantitative restriction policies and inflexible labor laws distorted the allocation of resources between intermediate inputs and labor inputs. Moreover, the combination of high inflation and the unavailability of credit exacerbated this factor distortion and lowered productivity growth further. Using panel data on Indian industries, this chapter finds underutilization of materials compared to labor until recently. The productivity growth is 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 the 1990s.

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Attribution-NonCommercial-NoDerivatives 4.0 International

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