Determinants of Total Factor Productivity in India: an Econometric Analysis

Abstract

Productivity rise as a source of growth has high potential to uplift millions out of poverty. Mitigating the productivity gap can play vital role in helping developing countries to offset with developed countries. In this regard, present study attempts to scrutinize the relationship and significance of various determinants of total factor productivity (TFP) in India for the period 1990–1991 to 2019–2020. To this end, autoregressive distributed lag bounds testing approach has been utilized. The results pinpoint that trade openness and unemployment have a positive impact on total factor productivity. On the other hand, inflation has a negative but insignificant relationship with total factor productivity, both in the short and long run. The results imply that exports need to be diversified, and import of capital goods should be encouraged to enhance TFP in the long run. Further, foreign-owned business entities need to be encouraged to hire domestic workers, which would result in enhanced TFP in the long run.