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Can total factor productivity explain value added growth in services?

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  • Verma, Rubina
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    Abstract

    This paper examines the factors responsible for generating the services led growth witnessed in the Indian economy during 1980–2005. A sectoral growth accounting exercise shows that total factor productivity (TFP) growth was the fastest for services; moreover this TFP increase was significant in accounting for service sector value added growth. A growth model with agriculture, industry and services as three principal sectors is calibrated to Indian data using sectoral TFP growth rates. The baseline model performs well in accounting for the evolution of value added shares and their growth rates, but is unable to capture sectoral employment share trends. The performance of the model with respect to value added shares improves when the post 1991 increase in service sector TFP growth following the inception of market-based liberalization reforms is accounted for. A modified version of the model with public capital can better track trends in sectoral employment shares.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Development Economics.

    Volume (Year): 99 (2012)
    Issue (Month): 1 ()
    Pages: 163-177

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    Handle: RePEc:eee:deveco:v:99:y:2012:i:1:p:163-177

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    Web page: http://www.elsevier.com/locate/devec

    Related research

    Keywords: TFP; India; Services; Growth; Public capital;

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    Cited by:
    1. Berthold Herrendorf & Richard Rogerson & Ákos Valentinyi, 2013. "Growth and Structural Transformation," NBER Working Papers 18996, National Bureau of Economic Research, Inc.
    2. Timothy Uy & Kei-Mu Yi & Jing Zhang, 2013. "Structural change in an open economy," Working Paper Series WP-2013-09, Federal Reserve Bank of Chicago.
    3. Banerjee, Rajabrata & Roy, Saikat Sinha, 2014. "Human capital, technological progress and trade: What explains India's long run growth?," Journal of Asian Economics, Elsevier, vol. 30(C), pages 15-31.
    4. Takumi Naito, 2013. "Aid for trade, infrastructure, and growth," International Tax and Public Finance, Springer, vol. 20(6), pages 886-909, December.

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