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Technological Progress, Scale Effect and Total Factor Productivity Growth in Indian Cement Industry: Panel Estimation of Stochastic Production Frontier

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  • Sabuj Kumar Mandal

    (Institute for Social and Economic Change)

Abstract

The economic policy reform in respect of Indian cement industry, during the early 80's, resulted in a phenomenal growth of this sector and the industry has, in fact, become the second largest in the world. However, this growth has been associated with a greater use of energy and other resources, resulting in severe environmental degradation. Further development of this industry, without increasing energy demand and thereby reducing emission and waste, would require increased productivity. This paper estimates Total Factor Productivity (TFP) growth in Indian cement industry during the period 1989-90 to 2006-07 using company level data and applying Stochastic Frontier Approach. TFP growth is decomposed into technical progress (TP), technical efficiency change (TEC) and changes in scale component (SC) with a view to gaining some insights into the sources of productivity growth of this industry in the post reform era. Empirical results show that TFP growth is mainly driven by SC and TP and not by TEC since TE is time invariant in nature. In the light of empirical results, the policy implication is that an industrial policy of exploiting the existing economies of scale is required to be implemented; and to boost the growth of this sector; priority should be given to enhance firms' capability of catching-up by adopting efficiency oriented action plan.

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File URL: http://www.isec.ac.in/WP%20216%20-%20Sabuj%20Mandal%20and%20Madheswaran_1.doc%20%281%29.pdf
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Bibliographic Info

Paper provided by Institute for Social and Economic Change, Bangalore in its series Working Papers with number 216.

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Length: 22 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:sch:wpaper:216

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Related research

Keywords: Cement Indistry; Economic Reforms;

References

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  1. Joyashree Roy & Jayant Sathaye & Alan Sanstad & Puran Mongia & Katja Schumacher, 1999. "Productivity Trends in India's Energy Intensive Industries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 33-61.
  2. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
  3. 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.
  4. Yang, Ming, 2006. "Energy efficiency policy impact in India: case study of investment in industrial energy efficiency," Energy Policy, Elsevier, vol. 34(17), pages 3104-3114, November.
  5. Sangho Kim & Gwangho Han, 2001. "A Decomposition of Total Factor Productivity Growth in Korean Manufacturing Industries: A Stochastic Frontier Approach," Journal of Productivity Analysis, Springer, vol. 16(3), pages 269-281, November.
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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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