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Can total factor productivity explain value added growth in services?

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  • Verma, Rubina

Abstract

This paper examines the factors responsible for generating the services led growth witnessed in the Indian economy during 1980–2005. A sectoral growth accounting exercise shows that total factor productivity (TFP) growth was the fastest for services; moreover this TFP increase was significant in accounting for service sector value added growth. A growth model with agriculture, industry and services as three principal sectors is calibrated to Indian data using sectoral TFP growth rates. The baseline model performs well in accounting for the evolution of value added shares and their growth rates, but is unable to capture sectoral employment share trends. The performance of the model with respect to value added shares improves when the post 1991 increase in service sector TFP growth following the inception of market-based liberalization reforms is accounted for. A modified version of the model with public capital can better track trends in sectoral employment shares.

Suggested Citation

  • Verma, Rubina, 2012. "Can total factor productivity explain value added growth in services?," Journal of Development Economics, Elsevier, vol. 99(1), pages 163-177.
    • Handle: RePEc:eee:deveco:v:99:y:2012:i:1:p:163-177
    DOI: 10.1016/j.jdeveco.2011.12.003
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    Cited by:

    1. Cai, Wenbiao, 2015. "Structural change accounting with labor market distortions," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 54-64.
    2. Takumi Naito, 2013. "Aid for trade, infrastructure, and growth," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 886-909, December.
    3. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    4. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941 Elsevier.
    5. Murat Üngör, 2016. "Did the rising importance of services decelerate overall productivity improvement of Turkey during 2002–2007?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 19(3), pages 238-261, July.
    6. Fukao, Kyoji & Paul, Saumik, 2017. "The Role of Structural Transformation in Regional Convergence in Japan: 1874-2008," Discussion Paper Series 665, Institute of Economic Research, Hitotsubashi University.
    7. Caroline Betts & Rahul Giri & Rubina Verma, 2017. "Trade, Reform, and Structural Transformation in South Korea," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 745-791, November.
    8. Sen Gupta, Abhijit & More, Vishal & Gupta, Kanupriya, 2016. "Structural Change and Poverty Reduction at Sub-State Levels in India," MPRA Paper 72740, University Library of Munich, Germany.
    9. John Bailey Jones & Sohini Sahu, 2017. "Transition accounting for India in a multi-sector dynamic general equilibrium model," Economic Change and Restructuring, Springer, vol. 50(4), pages 299-339, November.
    10. Gopalakrishnan, Pawan & Saha, Anuradha, 2015. "Tax Policy and Food Security," MPRA Paper 62089, University Library of Munich, Germany.
    11. Hehe Liu & Tianyu Yang, 2015. "Explaining the Productivity Growth Gap Between China and India: The Role of Structural Transformation," The Developing Economies, Institute of Developing Economies, vol. 53(2), pages 100-121, June.
    12. Banerjee, Rajabrata & Roy, Saikat Sinha, 2014. "Human capital, technological progress and trade: What explains India's long run growth?," Journal of Asian Economics, Elsevier, vol. 30(C), pages 15-31.
    13. Betts, Caroline & Giri, Rahul & Verma, Rubina, 2017. "Trade, Reform and Structural Change in South Korea," MPRA Paper 79072, University Library of Munich, Germany.
    14. Dikova, Desislava & Jaklič, Andreja & Burger, Anže & Kunčič, Aljaž, 2016. "What is beneficial for first-time SME-exporters from a transition economy: A diversified or a focused export-strategy?," Journal of World Business, Elsevier, vol. 51(2), pages 185-199.

    More about this item

    Keywords

    TFP; India; Services; Growth; Public capital;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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