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Can total factor productivity explain value added growth in services?

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  • Verma, Rubina
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    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.

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    Article provided by Elsevier in its journal Journal of Development Economics.

    Volume (Year): 99 (2012)
    Issue (Month): 1 ()
    Pages: 163-177

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    Handle: RePEc:eee:deveco:v:99:y:2012:i:1:p:163-177
    Contact details of provider: Web page: http://www.elsevier.com/locate/devec

    Keywords: TFP; India; Services; Growth; Public capital;

    Find related papers by 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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    Cited by:

    1. 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.
    2. Gopalakrishnan, Pawan & Saha, Anuradha, 2015. "Tax Policy and Food Security," MPRA Paper 62089, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. Takumi Naito, 2013. "Aid for trade, infrastructure, and growth," International Tax and Public Finance, Springer, vol. 20(6), pages 886-909, December.
    6. Wenbiao Cai, 2014. "Structural Change Accounting with Labor Market Distortions," Departmental Working Papers 2014-03, The University of Winnipeg, Department of Economics.

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