Indian Manufacturing Industry: Elephant or Tiger? New Evidence on the Asian Miracle
We estimate the rate of total factor productivity growth in Indian manufacturing industry for the period 1973-1992, and compare the results to those obtained by Young for the East Asian Tigers. We then interpret our results in light of Krugman's hypothesis that, because the Asian Miracle was driven by capital formation under diminishing marginal returns, it is not sustainable. We suggest a reinterpretation of the sustainability problem that recognizes the true role of TFP as a motive force in output growth. Past studies have compared the TFP residual to the growth rate of output and used this ratio as a measure of the importance of TFP as a source of growth. We argue that this is an erroneous way of assessing the role of TFP, because it ignores the additional capital formation made possible by an increase in productivity and therefore understates productivity's true importance. Our estimates suggest that the understatement may be quite large, and that one might better ask if the growth rate of TFP, rather than capital growth, is sustainable.
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- Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
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- Chang-Tai Hsieh, 1999. "Productivity Growth and Factor Prices in East Asia," American Economic Review, American Economic Association, vol. 89(2), pages 133-138, May.
- Hulten, Charles R, 1975. "Technical Change and the Reproducibility of Capital," American Economic Review, American Economic Association, vol. 65(5), pages 956-65, December.
- Arup Mitra & Aristomène Varoudakis & Marie-Ange Véganzonès, 1998. "State Infrastructure and Productive Performance in Indian Manufacturing," OECD Development Centre Working Papers 139, OECD Publishing.
- Islam, Nazrul, 1999. "International Comparison of Total Factor Productivity: A Review," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(4), pages 493-518, December.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
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