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Indian Manufacturing Industry: Elephant or Tiger? New Evidence on the Asian Miracle

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  • Charles R. Hulten
  • Sylaja Srinivasan
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    Abstract

    We estimate the rate of total factor productivity growth in Indian manufacturing industry for the period 1973-1992, and compare the results to those obtained by Young for the East Asian Tigers. We then interpret our results in light of Krugman's hypothesis that, because the Asian Miracle was driven by capital formation under diminishing marginal returns, it is not sustainable. We suggest a reinterpretation of the sustainability problem that recognizes the true role of TFP as a motive force in output growth. Past studies have compared the TFP residual to the growth rate of output and used this ratio as a measure of the importance of TFP as a source of growth. We argue that this is an erroneous way of assessing the role of TFP, because it ignores the additional capital formation made possible by an increase in productivity and therefore understates productivity's true importance. Our estimates suggest that the understatement may be quite large, and that one might better ask if the growth rate of TFP, rather than capital growth, is sustainable.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7441.

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    Date of creation: Dec 1999
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    Handle: RePEc:nbr:nberwo:7441

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    1. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
    2. Arup Mitra & Aristomène Varoudakis & Marie-Ange Véganzonès, 1998. "State Infrastructure and Productive Performance in Indian Manufacturing," OECD Development Centre Working Papers 139, OECD Publishing.
    3. Hulten, Charles R, 1975. "Technical Change and the Reproducibility of Capital," American Economic Review, American Economic Association, vol. 65(5), pages 956-65, December.
    4. Nadiri, M. Ishaq & Prucha, Ingmar R., 1997. "Sources of growth of output and convergence of productivity in major OECD countries," International Journal of Production Economics, Elsevier, vol. 52(1-2), pages 133-146, October.
    5. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-25, November.
    6. Fikkert, Brian & Hasan, Rana, 1998. "Returns to scale in a highly regulated economy: evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 56(1), pages 51-79, June.
    7. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    8. Chang-Tai Hsieh, 1999. "Productivity Growth and Factor Prices in East Asia," American Economic Review, American Economic Association, vol. 89(2), pages 133-138, May.
    9. Alwyn Young, 1992. "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 13-64 National Bureau of Economic Research, Inc.
    10. Islam, Nazrul, 1999. "International Comparison of Total Factor Productivity: A Review," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(4), pages 493-518, December.
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    Cited by:
    1. Kaustuva Barik, 2005. "Capacity Utilization in Indian Paper Industry," Microeconomics 0503001, EconWPA.
    2. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    3. Danish Hashim, 2004. "Cost & productivity in Indian textiles: Post MFA implications," Indian Council for Research on International Economic Relations, New Delhi Working Papers 147, Indian Council for Research on International Economic Relations, New Delhi, India.
    4. Peter E Robertson, 2010. "Deciphering The Hindu Growth Epic," Economics Discussion / Working Papers 10-19, The University of Western Australia, Department of Economics.
    5. Albert Bollard & Peter Klenow & Gunjan Sharma, 2012. "Online Appendix to "India's Mysterious Manufacturing Miracle"," Technical Appendices 11-75, Review of Economic Dynamics.
    6. Arvind Panagariya, 2004. "India’s Trade Reform: Progress, Impact and Future Strategy:," International Trade 0403004, EconWPA.
    7. Danish A Hashim, 2007. "Cost and Productivity in Indian Textiles: Post MFA Implications," Working Papers id:1006, eSocialSciences.
    8. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge," IMF Working Papers 04/77, International Monetary Fund.
    9. Leandro Prados de la Escosura & Joan R. Rosés, 2008. "Proximate causes of economic growth in Spain, 1850-2000," Working Papers in Economic History wp08-12, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
    10. Sanja S. Pattnayak & Thangavelu, S. M., 2003. "Economic Reform and Productivity growth in Indian Manufacturing Industries: An interaction of technical change and scale economies," Departmental Working Papers wp0307, National University of Singapore, Department of Economics.
    11. Pete Klenow & Gunjan Sharma & Albert Bollard, 2011. "India's Mysterious Manufacturing Miracle," 2011 Meeting Papers 1176, Society for Economic Dynamics.
    12. Deb Kusum Das & Gunajit Kalita, 2009. "Aggregate Productivity Growth in Indian Manufacturing: An Application of Domar Aggregation," Working Papers id:2169, eSocialSciences.
    13. Pattnayak, Sanja S. & Thangavelu, S.M., 2005. "Economic reform and productivity growth in Indian manufacturing industries: an interaction of technical change and scale economies," Economic Modelling, Elsevier, vol. 22(4), pages 601-615, July.
    14. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.

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