Indian Manufacturing Industry: Elephant or Tiger? New Evidence on the Asian Miracle

39 Pages Posted: 19 Mar 2000 Last revised: 2 Apr 2001

See all articles by Charles R. Hulten

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Sylaja Srinivasan

Bank of England - Monetary Analysis

Date Written: December 1999

Abstract

We estimate the rate of total factor productivity growth in Indian manufacturing industry for the period 1973-1992, and compare the results to those obtained by Young for the East Asian Tigers. We then interpret our results in light of Krugman's hypothesis that, because the Asian Miracle was driven by capital formation under diminishing marginal returns, it is not sustainable. We suggest a reinterpretation of the sustainability problem that recognizes the true role of TFP as a motive force in output growth. Past studies have compared the TFP residual to the growth rate of output and used this ratio as a measure of the importance of TFP as a source of growth. We argue that this is an erroneous way of assessing the role of TFP, because it ignores the additional capital formation made possible by an increase in productivity and therefore understates productivity's true importance. Our estimates suggest that the understatement may be quite large, and that one might better ask if the growth rate of TFP, rather than capital growth, is sustainable.

Suggested Citation

Hulten, Charles R. and Srinivasan, Sylaja, Indian Manufacturing Industry: Elephant or Tiger? New Evidence on the Asian Miracle (December 1999). NBER Working Paper No. w7441. Available at SSRN: https://ssrn.com/abstract=202411

Charles R. Hulten (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sylaja Srinivasan

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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