Indian Manufacturing Productivity: What Caused the Growth Stagnation before the 1990s?
This article addresses the question of why productivity growth in Indian manufacturing was slow in the pre-reform period and analyzes how economic reforms in the 1990s accelerated productivity growth. The answer lies in two subtle but important distortion-inefficiency mechanisms, which affected productivity growth by distorting intermediate input allocation. The interaction of quantitative restriction policies and inflexible labour laws resulted in lower than optimal materials per worker usage. The combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered productivity growth further. Using a panel dataset on Indian industries, this article finds widespread underutilization of materials compared to labour until recently, and this sub-optimal materials per worker usage lowered productivity growth.
Volume (Year): 20 (2010)
Issue (Month): (Fall)
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- Chang-Tai Hsieh & Peter J Klenow, 2008.
"Misallocation and Manufacturing TFP in China and India,"
2008 Meeting Papers
121, Society for Economic Dynamics.
- Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1403-1448, November.
- Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," NBER Working Papers 13290, National Bureau of Economic Research, Inc.
- Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers 07-006, Stanford Institute for Economic Policy Research.
- Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007.
- Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers 09-04, Center for Economic Studies, U.S. Census Bureau.
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