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Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing

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  • Arnab Deb

    (International Management Institute)

Abstract

In this study, we attempt to identify the channels through which economic reforms enhanced the productivity growth in total manufacturing sector in India. Because one possible channel is better utilization of plant capacity, we estimate capacity utilization rate in Indian manufacturing. Empirical estimates show that the annual average capacity utilization rate in Indian manufacturing was lower over the post-reform years. However, after the reforms capacity utilization rate grew faster at the all India level as well as for most of the major industrial states. Subsequent regression analysis confirms that there was evidence of a favorable impact of economic reforms on productivity growth in total manufacturing, beyond the positive impact of improved capacity utilization.

Suggested Citation

  • Arnab Deb, 2013. "Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing," Alumni working papers 2013-05, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:alumni:2013-05
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    References listed on IDEAS

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    1. Morrison, Catherine J., 1986. "Productivity measurement with non-static expectations and varying capacity utilization : An integrated approach," Journal of Econometrics, Elsevier, pages 51-74.
    2. Chris Milner & Dev Vencappa & Peter Wright, 2007. "Trade Policy and Productivity Growth in Indian Manufacturing," The World Economy, Wiley Blackwell, vol. 30(2), pages 249-266, February.
    3. Shailendra Gajanan & D. Malhotra, 2007. "Measures of capacity utilization and its determinants: a study of Indian manufacturing," Applied Economics, Taylor & Francis Journals, vol. 39(6), pages 765-776.
    4. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, pages 31-50.
    5. Pushpa Trivedi, 2004. "An Inter-State Perspective on Manufacturing Productivity in India: 1980-81 to 2000-01," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 39(1), pages 203-237, January.
    6. Ernst R. Berndt & Melvyn A. Fuss, 1982. "Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization," NBER Working Papers 0895, National Bureau of Economic Research, Inc.
    7. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, pages 151-167.
    8. Morrison, Catherine J., 1986. "Productivity measurement with non-static expectations and varying capacity utilization : An integrated approach," Journal of Econometrics, Elsevier, pages 51-74.
    9. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 181-242.
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    11. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, pages 1078-1092.
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    13. J. M. Cassels, 1937. "Excess Capacity and Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 51(3), pages 426-443.
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    15. Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-666, August.
    16. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, pages 7-29.
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    More about this item

    Keywords

    Economic Reform; Total Factor Productivity; Data Envelopment Analysis; Malmquist Index; Gross Capacity Utilization; Net Capacity Utilization;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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