Aggregate and Sectoral Productivity Growth in the Indian Economy: Analysis and Determinants

Abstract

This study analyses and compares estimates of labour productivity growth and total factor productivity growth for the Indian economy as provided by four databases, viz., India KLEMS (IKLEMS), Asian Productivity Organization (APO), Penn World Tables (PWT9.1) and The Conference Board’s Total Economy Database (TED) over the period 1981–2015. It investigates determinants of productivity growth of the Indian economy based on measures of productivity growth from the four datasets using GMM method. It also examines the trends and determinants of productivity growth of the major components of industry and services sectors, viz., manufacturing and market services, respectively. The study finds that while there are differences in the estimates of productivity growth across various datasets that may be attributed to differences in the definitions, methods of measurement and revisions of databases, the trends are broadly similar. Further, the econometric results of the study are robust across all databases and indicate that capital deepening, technological progress, government size, institutional quality, share of agriculture in GDP and openness are significant determinants of productivity growth of the Indian economy over the period 1981–2015. Further, results on the disaggregate analysis indicate that capital deepening, technology, government size, productivity growth of the other sector and openness are significant determinants of labour productivity growth of both manufacturing and market services of India over the period 1981–2015. A comparison of results across the two sectors further suggests that while there exist significant spillover effects between sectors, the impact is stronger from services to manufacturing than the other way around.