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Indian Economy - TFP or Factor Accumulation: A Comprehensive Growth Accounting Exercise

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  • Gupta, Abhay

Abstract

Constructing data series from various sources, I do comprehensive growth accounting for the Indian Economy. Without accounting for human capital, total factor productivity differences over time accounts for 48% to 69% of output variation. TFP growth accounts for 35% to 70% of the total GDP growth between 1960 and 2004 depending on measure of human capital. Even after using the Mincer wage regression coefficients, TFP growth still remains significant in explaining the output growth. Starting from a modest rate in 60s Productivity growth dipped and became negative in 70s. This productivity growth rate started accelerating in 80s (much before the reform-period of early 90s) and is estimated between 3% and 4.5% in 2000s. Variance decomposition of growth rates show negative relation because input and output growth accelerated in different periods. Capital-Output ratio seems to transition from one-steady state to another. Capital-per-Worker has reached a constant rate of growth. Accounting estimates, decompositions and period-wise trends point toward Indian growth being triggered by overall efficiency improvement (TFP) rather than input accumulation growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10316.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:10316

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Keywords: Growth Accounting; Indian Economy; Mincer Regression; Variance Decomposition; TFP; Factor Accumulation;

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  1. 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.
  2. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  3. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
  4. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  5. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  6. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741 Elsevier.
  7. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  8. Amartya Lahiri & Kei-Mu Yi, 2006. "A tale of two states: Maharashtra and West Bengal," Working Papers 06-16, Federal Reserve Bank of Philadelphia.
  9. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge," IMF Working Papers 04/77, International Monetary Fund.
  10. Arvind Virmani, 2004. "Sources of India's economic growth: trends in total factor productivity," Indian Council for Research on International Economic Relations, New Delhi Working Papers 131, Indian Council for Research on International Economic Relations, New Delhi, India.
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