A decomposition of total productivity growth

Abstract

Purpose To measure total factor productivity (TFP) growth in industrial manufacturing for 15 major Indian states for the period 1982‐1983 to 2000‐2001. Design/methodology/approach Uses non‐parametric linear programming methods; TFP growth is decomposed into efficiency and technological changes and also measures 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 with the pre‐reform period. Findings Findings of the present exercise indicate the improvement in TFP. The recent change in TFP is governed by the technical progress in contrast with 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 a tendency for convergence in terms of TFP growth rate among Indian states during the post‐reform years and only the states that were technically efficient at the beginning of the reforms remain innovative. Originality/value Decomposing state level data on manufacturing into technical change and efficiency change helps in identifying the directions biases in favour of labour or capital. Also, this analysis demonstrates the richness of linear programming technique that allows for an investigation of important research questions on the underlying processes that influence TFP growth.