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An Application of Economic Capacity Utilization to the Measurement of Total Factor Productivity Growth: Empirical Evidence from Indian Fertilizer Industry

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  • Sarbapriya, Ray

    ()
    (2Dept. of commerce, Shyampur Siddheswari Mahavidyalaya, under Calcutta University, Howrah, West Bengal , India, 27/ 4 Chowdhury Para Second Bye Lane, P.O- Santragachi, District- Howrah, PIN-711104, West Bengal, India)

  • Mihir, Kumar Pal

    ()
    (Dept. of Economics, Vidyasagar University, Paschim Medinipur, West Bengal, India)

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    Abstract

    This paper attempts to measure the productivity performance of the Indian fertilizer industry at the aggregate level, with adjustment for variations in capacity utilization during the period from 1979-80 to 2003-04. Using a translog specification, our econometric analysis reveals a decelerating trend in total factor productivity growth resulting in negative impact of economic reforms on the Indian fertilizer industry. The study also indicates a declining trend of economic capacity utilization suggesting the adverse impact of liberalization after the mid 90’s, due to slow increases in actual output; this probably results from stagnated demand and rapid expansion of capacity as a result of the abolition of the licensing rule consequent to economic reforms. Total output growth in the Indian fertilizer industry is found to be mainly as a result of inputaccumulation rather than productivity driven. The analysis reveals that a correction for capacity utilization mitigates the variations in total factor productivity growth.

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    Bibliographic Info

    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2011)
    Issue (Month): 1 (March)
    Pages: 125-142

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    Handle: RePEc:rjr:romjef:v::y:2011:i:1:p:125-142

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    Keywords: Total Factor Productivity growth; capacity utilization; fertilizer; industry; economic reforms;

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    1. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    2. Jagdish N. Bhagwati & T. N. Srinivasan, 1975. "Foreign Trade Regimes and Economic Development: India," NBER Books, National Bureau of Economic Research, Inc, number bhag75-1.
    3. Jorgenson, Dale W, 1988. "Productivity and Postwar U.S. Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 23-41, Fall.
    4. Catherine J. Morrison, 1985. "Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach," NBER Working Papers 1561, National Bureau of Economic Research, Inc.
    5. Catherine J. Morrison, 1985. "On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations," NBER Working Papers 1536, National Bureau of Economic Research, Inc.
    6. Srinivasan, P.V., 1992. "Determinants of Capacity Utilization in Indian Industries," Papers 71, Indira Gandhi Institute of Development Research-.
    7. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    8. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    9. J. R. Norsworthy & Michael J. Harper & Kent Kunze, 1979. "The Slowdown in Productivity Growth: Analysis of Some Contributing factors," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 387-422.
    10. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
    11. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
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