Do exogenous factors matter in the productivity growth trajectory of Indian manufacturing

Abstract

The study tries to present total factor productivity growth in Indian manufacturing sector to identify the exogenous factors that led to the growth of productivity in manufacturing sector during 1996-1997 to 2016-2017. Using GMM estimation, the study reveals that FDI inflow, political stability, initial education, research and development expenditure are found to positively impact productivity growth in Indian manufacturing. Trade openness yields adverse impact on TFPG. Female participation and initial investment unexpectedly caused negative impact on TFPG. Negative impact of per capita GDP on TFPG, although insignificant, suggests that economic growth in India is mainly input accumulated rather than productivity driven. Sectoral composition having insignificant negative impact indicates that predominance of agricultural sector would lower productivity growth in manufacturing sector of India. With input accumulated growth prevalent in India, improving TFPG is an urgent need in order to reduce dependence on physical inputs as well to become a productivity driven economy.