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Economic liberalization and productivity for selected Indian manufacturing industries: a panel cointegration approach

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  • Sanja Samirana Pattnayak
  • Shandre Thangavelu

Abstract

This article estimates the long-run production function for a panel of 13Indian manufacturing industries for the period 1981 to 1998. To account for nonstationarity and to avoid spurious regression problems, the panel unit-roots tests as suggested by Im et al. (2003) and the panel cointegration techniques as proposed by Pedroni (1999) were used. The generalized methods of moments (GMM) estimation methodology as suggested by Arellano and Bond (1991) and Blundell and Bond (2000), were used to deal with the simultaneity bias introduced by measurement errors. Based on the panel cointegration test, we found evidence of long-run production relationship for all the selected industries. We also observe increasing returns to scale in 3 out of 13 industries under study. However, comparing the pre- and post-liberalization periods, there are improvements in total factor productivity (TFP) in 9 out of 13 industries in the post-liberalization period of 1991 to 1998. This clearly supports the observations that there are significant economic improvements in the recent Indian economic reforms.

Suggested Citation

  • Sanja Samirana Pattnayak & Shandre Thangavelu, 2010. "Economic liberalization and productivity for selected Indian manufacturing industries: a panel cointegration approach," Applied Economics, Taylor & Francis Journals, vol. 42(2), pages 197-209.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:2:p:197-209
    DOI: 10.1080/00036840701604321
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    1. Richard Blundell & Stephen Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
    2. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    3. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
    5. Peter Phillips & Hyungsik Moon, 2000. "Nonstationary panel data analysis: an overview of some recent developments," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 263-286.
    6. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
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    2. Bhattacharya, Mita & Narayan, Paresh, 2015. "Output and labor productivity in organized manufacturing: A panel cointegration analysis for India," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 171-177.

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