Decomposition of Output and Productivity Growth in the Organised Manufacturing Industries in India: An Inter-State Analysis

Abstract

This article examines and applies the theoretical foundation of the decomposition of output and total factor productivity growth (TFPG) of the aggregate manufacturing industries in 15 major industrialised states in India as well as in all-India during the period from 1981–1982 to 2010–2011, during the entire period, during the pre-reform period (1981–1982 to 1990–1991) and post-reform period (1991–1992 to 2010–2011), and also during two different decades of the post-reform period, that is, during 1991–1992 to 2000–2001 and 2001–2002 to 2010–2011. Output growth is decomposed into input growth effect and TFPG where the three attributes of TFPG are adjusted scale effect, technological progress (TP) and technical efficiency change. A stochastic frontier model with a translog production function is used to estimate the growth attributes of output and total factor productivity (TFP). The empirical results show that input growth is the major contributor to output growth, whereas TP is found to be the major contributor to TFPG and the decline in TFPG of the organised manufacturing sector in India and in its major industrialised states during the post-reform period is mainly due to the decline in TP of the same during that period. JEL Codes: C23, D24, L6, O47