IMPORT LIBERALIZATION AND PRODUCTIVITY GROWTH IN INDIAN MANUFACTURING INDUSTRIES IN THE 1990s

Total factor productivity growth in Indian manufacturing decelerated in the 1990s, a decade of major economic reforms in India. Econometric analysis presented in the paper indicates that the lowering of effective protection to industries favorably affected productivity growth. The results suggest that gestation lags in investment projects and slower agricultural growth in the 1990s had an adverse effect on productivity growth. The analysis reveals that underutilization of industrial capacity was an important cause of the productivity slowdown. With corrections for capacity utilization, the estimated productivity growth in the 1990s is found to be about the same as in the 1980s.     

TRADE LIBERALIZATION AND PRICE‐COST MARGIN IN INDIAN INDUSTRIES

Using panel data for 137 three‐digit industries for 1980/81 to 1997/98, the paper examines the effect of trade liberalization on price‐cost margins in Indian industries. An econometric model is estimated to explain variations in price‐cost margins, taking tariff and nontariff barriers among the explanatory variables. The results indicate that the lowering of tariffs and removal of quantitative restrictions on imports of manufactures in the 1990s had a significant pro‐competitive effect on Indian industries, particularly concentrated industries, tending to reduce the price‐cost margins. The paper notes that despite the pro‐competitive effects of trade liberalization reinforced by domestic industrial deregulation, the price‐cost margin increased in the post‐reform period in most industries and aggregate manufacturing, which is attributed to a marked fall in the growth rate of real wages and a significant reduction in labor's income share in value added in the post‐reform period, reflecting perhaps a weakening of industrial labor's bargaining power.     

Do Technological Conditions of Production Explain Industrial Growth? The Indian Manufacturing, 1998–1999 to 2007–2008

The paper tries to assess whether the technological conditions of production can explain the sluggishness in growth in Indian manufacturing industries reflected in a stagnant share in aggregate GDP. For this purpose, the returns to scale and elasticity of factor substitution are estimated for various two-digit manufacturing industries of India for the years 1998–1999 to 2007–2008 using the translog production function specification. Most of the previous research of this kind was undertaken by using either aggregate level time-series or state-wise aggregate cross-section data. The recent availability of factory (plant) level panel data has motivated us to re-estimate the parameters of the production function for the Indian manufacturing using factory-level data. Our results clearly indicate presence of significant scale economies. We observe that the capital-labour elasticity of substitution varies across industries, being a little above one or less than one in nearly half of the cases. A multiple regression analysis has been undertaken with the help of industry-level panel data for the years 1998–1999 to 2007–2008 to find out if the manufacturing growth rate is conditioned by the parameters of the production function. Our results indicate that production function parameters do exert an important influence on the rate of growth.