Regional Disparity and Convergence of the Growth of Output, Employment and Productivity of Labour of Indian Pharmaceutical Industry

Abstract

This paper tries to find out the nature of the growth process of output, employment and productivity of labour of Pharmaceutical Industry in the 17 major selected states, tests whether the series of the growth of output, employment and productivity of labour are converging towards a stationary process having deterministic trend and estimates the break point of these three variables for the period 1983-84 to 2007-08 employing endogenous structural break analysis of Sen (2003). The distinguishing feature of this method is that the break point is not dependent on the prior belief of the researcher; rather it is endogenously determined depending on time series properties of the series. The results of estimation suggest that for most of the states, the endogenously determined break point turned out to be the years after 1995, the year when the first version of product patent was implemented and The Drug and Cosmetic Act was also amended to infuse competition in this sector. Thus important policy changes pertaining to this sector have taken place in the year 1995. An interstate and regional variation of the growth of output, employment and productivity of labour is strongly evident. The growth of output of sixteen among the seventeen selected states converges towards a deterministic trend, it is fourteen for productivity of labour whereas for employment, all the states shows convergence toward stationary process having constant variability over time. The study clearly identifies the regions and the states whose performance are satisfactory and others showing relatively poor performance and hence needs special attention.