MANUFACTURING PRODUCTIVITY IN THE INDIAN STATES

Abstract

In this paper, we study the total factor productivity (TFP) of manufacturing industries in 22 Indian states for the periods 2008–2009 and 2011–2012 using industry data from ASI database. We estimate TFP by ordinary least squares using cross-sectional data. For correcting potential endogeneity, we apply two-stage least-squares approach using intermediate inputs as instruments. Our results show that despite a faster growth in the industries in the sample period, there appear wide regional disparities in the TFP in most industries assessed. We note that low-productivity states display a higher variation in TFP across industries than high-productivity states. Our results also confirm the dominance of capital-intensive techniques in Indian manufacturing. In addition, more importantly, there appears to be no sign of change in elasticity of inputs over the sample period.