Trade Reform and Total Factor Productivity Growth in Indian Basic Metal Industry

Abstract

Basic metal industry in India and compare these results in the Pre-Liberalization and postLiberalization periods (1981-82 to 1990-91 and 1991-92 to 2016-17). We have used translog production function for estimation of TFPG. We have done relevant time series analysis in this paper. For time series analysis we have done Augmented Dicky Fuller test and Phillips-Perron test for checking stationarity of variables. Series of all the variables are found to be stationary. Bai-Perron structural break analysis is also used in this paper where two structural break points have been found in the year 2005 and 2013. Annual average total factor productivity growth has decreased in the post- liberalization period when compared with the pre- liberalization period, though, Solow measure shows a reverse result. We have also calculated average capacity utilization (CU) for the whole period (1981-82 to 2016-17) which is found to be more than 0.90. In the post-liberalization period average capacity utilization has increased marginally compared to the pre-liberalization period. We have also tried to find out the determinants of total factor productivity growth in the Basic metal industry in India. It has been seen from our regression analysis that only real-effective exchange rate, inflation rate, capacity utilization, investment in fixed assets are significant factors influencing total factor productivity growth (TFPG).The other factors which are individually insignificant are also found to be jointly insignificant.