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Productivity Growth in Indian Cement Industry: A Panel Estimation of Stochastic Production Frontier

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  • Sabuj Kumar Mandal
  • S. Madheswaran

    () (T. A. Pai Management Institute, India
    Institute for Social and Economic Change, India)

Abstract

The economic policy reform in respect of Indian cement industry, during the early 80's, resulted in a phenomenal growth of this sector. Cement industry being highly energy intensive in nature, further development of this industry, without increasing pressure on energy demand, would require growth in productivity. Thus, aim of this paper is to estimate Total Factor Productivity (TFP) growth in Indian cement industry as growth in TFP could ensure growth of this sector which is less dependent on energy and other inputs. Applying Stochastic Frontier Approach, the study first estimates TFP growth and then decomposes it into its components for the period 1989-90 to 2006-07. Empirical results show that the industry has experienced TFP growth during the study period and this growth is driven mainly by scale component and technical progress and not by technical efficiency change as technical efficiency has come out to be time invariant in this context. 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 plans.

Suggested Citation

  • Sabuj Kumar Mandal & S. Madheswaran, 2012. "Productivity Growth in Indian Cement Industry: A Panel Estimation of Stochastic Production Frontier," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(1), pages 287-303, January-J.
  • Handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:287-303
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    Keywords

    Total factor productivity growth; Stochastic Frontier Approach; Indian Cement Industry;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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