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Total Factor Productivity and Technical Efficiency of Indian Manufacturing: The Role of Infrastructure and Information & Communication Technology

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  • Marie-Ange VEGANZONES-VAROUDAKIS

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Arup MITRA
  • Chandan SHARMA

Abstract

Drawing on a recent dataset of the Indian manufacturing industry for 1994 to 2008, this paper shows for eight sectors that core infrastructure and Information & Communication Technology (ICT) matter for Total Factor Productivity (TFP) and Technical Efficiency (TE).In the analysis, we use a range of advanced estimation techniques to overcome problems of non-stationary, omitted variables, endogeneity and reverse causality (such as System-GMM, panel cointegration and FMOLS). Estimation results suggest that the impact of core infrastructure is rather strong on TFP and TE (elasticity of 0.32 and 0.17 respectively), while the effect of ICT appears slightly smaller (0.12 and 0.08, respectively). This finding is of particular importance in the Indian context of infrastructure bottlenecks. It strongly supports the idea that a lack of infrastructure can hamper growth in developing countries. Our results also reveal that the impact of infrastructure and ICT varies among the industries. Interestingly, Transport Equipments, Metal & Metal Products and Textile, which are sectors relatively more exposed to foreign competition, are also found to be more sensitive to infrastructure endowment. This result can be extended to the Chemical industry for TE. This finding implies that improving core and ICT infrastructure would proportionally benefit more to these sectors, which could play a leading role in the competitiveness and the industrial growth of the Indian economy.

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File URL: http://publi.cerdi.org/ed/2011/2011.15.pdf
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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 201115.

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Length: 32
Date of creation: 2011
Date of revision:
Handle: RePEc:cdi:wpaper:1262

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Keywords: infrastructure; Manufacturing Industry; India; Information and Communication Technology; total factor productivity; Technical efficiency;

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  1. Syed A. Basher & Mohammed Mohsin, 2003. ""PPP tests in cointegrated panels: Evidence from Asian developing countries"," Macroeconomics 0310013, EconWPA.
  2. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
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  5. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
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  7. G. Duggal, Vijaya & Saltzman, Cynthia & Klein, Lawrence R., 1999. "Infrastructure and productivity: a nonlinear approach," Journal of Econometrics, Elsevier, vol. 92(1), pages 47-74, September.
  8. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  9. David Canning & Peter Pedroni, 2008. "Infrastructure, Long-Run Economic Growth And Causality Tests For Cointegrated Panels," Manchester School, University of Manchester, vol. 76(5), pages 504-527, 09.
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Cited by:
  1. Bhaumik, Sumon K. & Zhou, Ying, 2014. "Do Business Groups Help or Hinder Technological Progress in Emerging Markets? Evidence from India," IZA Discussion Papers 7885, Institute for the Study of Labor (IZA).

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