MANUFACTURING SECTOR PRODUCTIVITY IN INDIA: ALL INDIA TRENDS, REGIONAL PATTERNS, AND NETWORK EXTERNALITIES FROM INFRASTRUCTURE ON REGIONAL GROWTH

Abstract

In this dissertation I examine sources of growth in the formal manufacturing sector in India, from 1970 to 2003. I consider both all-India trends and state-level trends in the growth of resource efficiency, measured by TFP, and the relative contribution of TFP growth to output growth in manufacturing, as compared to capital accumulation. At the state level, I also examine the relationship between per-capita income and trends in output per worker and TFP in the manufacturing sector. Finally, in a spatial econometric framework, I test for the presence and magnitude of network spillovers from infrastructure, including national and state highways, and electricity generation capacity, on manufacturing TFP levels across states.

My work contributes to an on-going debate on the response of manufacturing sector TFP to the implementation of economic reforms in India, in the 1980s and 1990s. At the regional level, this dissertation addresses not only the literature on the causes behind rising income inequality across states, but also on the role of infrastructure on regional growth, restricting attention to the manufacturing sector.

The results of this dissertation show that at the all-India level and at the state level, manufacturing sector TFP growth accelerated in India during periods of economic reform. The contribution of TFP growth to output growth increased in the 1990s relative to earlier periods, and exceeded the contribution of capital accumulation. At the state level, I find evidence of convergence in growth rates of output per worker and TFP in manufacturing. I do not find evidence of a significant correlation between output per worker in manufacturing and state per-capita incomes. Given the relatively small share of the manufacturing sector in state GDP on average, these results imply that the source of rising income inequalities across states may not be manufacturing. Finally, I find some evidence to suggest that there exist positive network spillovers from physical infrastructure on manufacturing sector TFP. The results suggest that doubling the stock of national and state highways, and electricity generation capacity can lead to a nine percent increase in manufacturing sector output.