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The Evolution of Manufacturing Efficiency: Evidence from Indian States

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  • Nitin Gupta

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Abstract

The paper investigates the patterns of variations in Indian industrial performance at both industry and state levels. Applying stochastic frontier analysis to an unbalanced panel of 15 Indian states, 22 industries at the 2-digit level, and an 11-year period spanning 1992-2002; the paper estimates, for each industry group, the relative ranking of states based on their technical efficiency scores, and how these rankings have changed over time. The results represent novel contributions to the growing debate on Indian industrial productivity, albeit from a different perspective. Three primary sets of conclusions arise. First, there is considerable variation across industries in terms of their aggregate efficiency performance. However, overall industrial performance appears to be driven more by input growth, with technical efficiency having a marginal effect at best. Second, results also show considerable regional variation in efficiency patterns, with southern and western states outperforming northern and eastern states in terms of their overall manufacturing efficiencies. Punjab is surprisingly the worstperforming state in the country in terms of this yardstick. Finally, detailed analysis at the state-industry level allows creation of state profiles, which summarise the relative strengths and performances of different industries across those states.

Suggested Citation

  • Nitin Gupta, 2012. "The Evolution of Manufacturing Efficiency: Evidence from Indian States," ASARC Working Papers 2012-13, The Australian National University, Australia South Asia Research Centre.
  • Handle: RePEc:pas:asarcc:2012-13
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    File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2012/WP2012_13.pdf
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    References listed on IDEAS

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    1. Paul Conway & Richard Herd & Thomas Chalaux, 2008. "Product Market Regulation and Economic Performance across Indian States," OECD Economics Department Working Papers 600, OECD Publishing.
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    3. Bulent Unel, 2003. "Productivity Trends in India's Manufacturing Sectors in the Last Two Decades," IMF Working Papers 03/22, International Monetary Fund.
    4. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
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    6. Renuka Mahadevan, 2002. "A frontier approach to measuring total factor productivity growth in Singapore’s services sector," Journal of Economic Studies, Emerald Group Publishing, vol. 29(1), pages 48-58, January.
    7. Subal Kumbhakar & M. Denny & M. Fuss, 2000. "Estimation and decomposition of productivity change when production is not efficient: a paneldata approach," Econometric Reviews, Taylor & Francis Journals, vol. 19(4), pages 312-320.
    8. Managi, Shunsuke & Opaluch, James J. & Jin, Di & Grigalunas, Thomas A., 2006. "Stochastic frontier analysis of total factor productivity in the offshore oil and gas industry," Ecological Economics, Elsevier, vol. 60(1), pages 204-215, November.
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    More about this item

    Keywords

    Manufacturing; technological change; technical efficiency; India;

    JEL classification:

    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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