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The Evolution of Manufacturing Efficiency: Evidence from Indian States

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  • Nitin Gupta

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    Abstract

    The paper investigates the patterns of variations in Indian industrial performance at both industry and state levels. Applying stochastic frontier analysis to an unbalanced panel of 15 Indian states, 22 industries at the 2-digit level, and an 11-year period spanning 1992-2002; the paper estimates, for each industry group, the relative ranking of states based on their technical efficiency scores, and how these rankings have changed over time. The results represent novel contributions to the growing debate on Indian industrial productivity, albeit from a different perspective. Three primary sets of conclusions arise. First, there is considerable variation across industries in terms of their aggregate efficiency performance. However, overall industrial performance appears to be driven more by input growth, with technical efficiency having a marginal effect at best. Second, results also show considerable regional variation in efficiency patterns, with southern and western states outperforming northern and eastern states in terms of their overall manufacturing efficiencies. Punjab is surprisingly the worstperforming state in the country in terms of this yardstick. Finally, detailed analysis at the state-industry level allows creation of state profiles, which summarise the relative strengths and performances of different industries across those states.

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    File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2012/WP2012_13.pdf
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    Bibliographic Info

    Paper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2012-13.

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    Length: 35
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:pas:asarcc:2012-13

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    Keywords: Manufacturing; technological change; technical efficiency; India;

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    1. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    2. Paul Conway & Richard Herd & Thomas Chalaux, 2008. "Product Market Regulation and Economic Performance across Indian States," OECD Economics Department Working Papers 600, OECD Publishing.
    3. Massimo Filippini & Jörg Wild & Michael Kuenzle, 2001. "Scale and cost efficiency in the Swiss electricity distribution industry: evidence from a frontier cost approach," CEPE Working paper series 01-08, CEPE Center for Energy Policy and Economics, ETH Zurich.
    4. Albert Bollard & Peter Klenow & Gunjan Sharma, 2012. "Online Appendix to "India's Mysterious Manufacturing Miracle"," Technical Appendices 11-75, Review of Economic Dynamics.
    5. Renuka Mahadevan, 2002. "A frontier approach to measuring total factor productivity growth in Singapore’s services sector," Journal of Economic Studies, Emerald Group Publishing, vol. 29(1), pages 48-58, January.
    6. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633.
    7. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2003. "Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India," Economics Study Area Working Papers 59, East-West Center, Economics Study Area.
    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. Managi, Shunsuke & Opaluch, James J. & Jin, Di & Grigalunas, Thomas A., 2006. "Stochastic frontier analysis of total factor productivity in the offshore oil and gas industry," Ecological Economics, Elsevier, vol. 60(1), pages 204-215, November.
    10. Bauer, Paul W., 1990. "Recent developments in the econometric estimation of frontiers," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 39-56.
    11. Pete Klenow & Gunjan Sharma & Albert Bollard, 2011. "India's Mysterious Manufacturing Miracle," 2011 Meeting Papers 1176, Society for Economic Dynamics.
    12. Bulent Unel, 2003. "Productivity Trends in India's Manufacturing Sectors in the Last Two Decades," IMF Working Papers 03/22, International Monetary Fund.
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