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The productivity-wage and productivity-employment nexus: a panel data analysis of Indian manufacturing

  • Mita Bhattacharya
  • Paresh Narayan

    ()

  • Stephan Popp
  • Badri Rath

This paper investigates the long-run relationship between labour productivity and employment, and between labour productivity and real wages in the case of the Indian manufacturing sector. The panel data set consists of 17 two-digit manufacturing industries for the period 1973-74 to 1999-2001. We find that productivity-wages and productivity-employment are panel cointegrated for all industries. We find that both employment and real wages exert a positive effect on labour productivity. We argue that flexible labor market has a significant influence on manufacturing productivity, employment and real wages in case of Indian manufacturing.

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File URL: http://hdl.handle.net/10.1007/s00181-010-0362-y
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 40 (2011)
Issue (Month): 2 (April)
Pages: 285-303

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Handle: RePEc:spr:empeco:v:40:y:2011:i:2:p:285-303
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  1. Bulent Unel, 2003. "Productivity Trends in India's Manufacturing Sectors in the Last Two Decades," IMF Working Papers 03/22, International Monetary Fund.
  2. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
  3. Bhalotra, Sonia R, 1998. "The Puzzle of Jobless Growth in Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(1), pages 5-32, February.
  4. Rashmi Banga, 2005. "Impact of liberalisation on wages and employment in Indian manufacturing industries," Indian Council for Research on International Economic Relations, New Delhi Working Papers 153, Indian Council for Research on International Economic Relations, New Delhi, India.
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  7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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  10. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  11. M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
  12. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  13. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  14. Hasan, Rana, 2002. "The impact of imported and domestic technologies on the productivity of firms: panel data evidence from Indian manufacturing firms," Journal of Development Economics, Elsevier, vol. 69(1), pages 23-49, October.
  15. Bell, Clive & Rousseau, Peter L., 2001. "Post-independence India: a case of finance-led industrialization?," Journal of Development Economics, Elsevier, vol. 65(1), pages 153-175, June.
  16. Raut, Lakshmi K., 1995. "R & D spillover and productivity growth: Evidence from Indian private firms," Journal of Development Economics, Elsevier, vol. 48(1), pages 1-23, October.
  17. David Canning & Peter Pedroni, 2008. "Infrastructure, Long-Run Economic Growth And Causality Tests For Cointegrated Panels," Manchester School, University of Manchester, vol. 76(5), pages 504-527, 09.
  18. B.N.Goldar, 2004. "Productivity trends in Indian manufacturing in the pre- and post- reform periods," Indian Council for Research on International Economic Relations, New Delhi Working Papers 137, Indian Council for Research on International Economic Relations, New Delhi, India.
  19. Norman R. Swanson & Jeffery D. Amato, 2000. "The real-time predictive content of money for output," BIS Working Papers 96, Bank for International Settlements.
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