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Impact of Infrastructure on Productivity: Case of Indian Registered Manufacturing

  • Deepika Goel

    (Shri Ram College of Commerce)

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    This study is primarily focused on the productivity impacts of the provision of infrastructure on the registered manufacturing sector in India. This is analyzed by estimating the cost elasticity of infrastructure inputs. For this purpose we postulate a variable cost function model for the manufacturing sector with cost as a function of the prices of the variable inputs, levels of output and infrastructure stocks. Variable inputs include capital, labour and intermediate input. Infrastructure is assumed to be a quasi-fixed input since its provision is done mainly by the public sector and it cannot be instantaneously adjusted in the short-run. The cost function model estimated consists of the variable translog cost function and the cost share equations for the variable inputs. We have used time series data and it pertains to the period 1965-1999. Twenty-three infrastructure variables are used in this study which, are aggregated using the principal component methodology. Three alternative specifications of the quasi-fixed inputs are explored. The alternatives are economic infrastructure, social infrastructure and aggregate infrastructure. Estimated results suggest that infrastructure provision enhances the productivity in the manufacturing sector and it helps to lower the costs in the sector. Apart from this it also has several bias effects with respect to the variable inputs.

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    Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 106.

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    Length: 33 pages
    Date of creation: Jul 2002
    Date of revision:
    Handle: RePEc:cde:cdewps:106
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    1. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
    2. Lynde, Catherine & Richmond, James, 1992. "The Role of Public Capital in Production," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 37-44, February.
    3. Ezequiel Uriel Jiménez & Francisco Pérez García & Matilde Mas Ivars & Joaquín Maudos Villarroya, 1995. "Infrastructures And Productivity In The Spanish Regions," Working Papers. Serie EC 1995-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Nadiri, M. Ishaq & Mamuneas, Theofanis P., 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," Working Papers 91-57, C.V. Starr Center for Applied Economics, New York University.
    5. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    6. Demetriades, Panicos O & Mamuneas, Theofanis P, 2000. "Intertemporal Output and Employment Effects of Public Infrastructure Capital: Evidence from 12 OECD Economics," Economic Journal, Royal Economic Society, vol. 110(465), pages 687-712, July.
    7. Peter Pedroni & David Canning, 2004. "The Effect of Infrastructure on Long Run Economic Growth," Department of Economics Working Papers 2004-04, Department of Economics, Williams College.
    8. Douglas Holtz-Eakin & Amy Ellen Schwartz, 1994. "Infrastructure in a Structural Model of Economic Growth," NBER Working Papers 4824, National Bureau of Economic Research, Inc.
    9. David Alan Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
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