A Decomposition of Total Factor Productivity Growth: The Case of Indian Manufacturing Growth Before and After Reforms

Total factor productivity (TFP) growth in industrial manufacturing is measured for 15 major Indian states for the period 1982-83 to 2000-01 using non-parametric linear programming methods. TFP growth is decomposed into efficiency and technological changes and also measure for the bias in technical change. The resulting information is used to examine whether the post-reform period shows any improvement in productivity and efficiency in comparison to the pre-reform one. Findings of the present exercise indicate the improvement in TFP. The recent change in TFP is governed by the technical progress in contrast to similar gain caused by the improvement in technical efficiency in the pre-reform regime. The technological progress in state manufacturing exhibited a capital using bias during the study period. Regional differences in TFP persist, although the magnitude of variation has declined in the post-reform period. Moreover, it is also found that there is Fellow, National Institute of Public Finance and Policy, 18/2 Satsang Vihar Marg, Special Institutional Area, Near JNU, New Delhi 110067 India. E-mail: [email protected] [email protected] Acknowledgements: The author wishes to thank Professors B. N. Goldar and Gopinath Pradhan for encouragement and for their comments and suggestions on the earlier version of this paper. However, the disclaimer applies.