Econometric Analysis of Total Factor Productivity in India

Abstract

This article attempts to investigate the potential relationship and significance of various determinants of Total Factor Productivity (TFP) in India for the 1980–2016 time period. Specifically, this is achieved in two stages. In the first, the standard growth accounting approach is used to measure the changes in TFP. Then, the main model for establishing the determinants of TFP growth is estimated using the autoregressive distributed lag (ARDL) model. Our results suggest that inflation and financial development have a statistically positive impact on TFP. Foreign direct investment, imports, and capital formation are found to have a positive but insignificant impact on the TFP. On the other hand, exports, government size, and natural calamities have a statistically negative impact on TFP. Therefore, in order to accelerate the TFP, governments and policymakers need to design and implement policies to increase financial access to the private sector, while maintaining price stability; exports of high-value products; and increased economic integration in the global economy to benefit from foreign investment flows, which brings in new technology.JEL Classification: O4, O40, O47