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International Trade and Productivity Growth in Indian Industry: Evidence from the Organized Manufacturing Sector

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  • R. Rijesh

Abstract

The present study attempts to examine the impact of international trade on manufacturing productivity in India through the effects of economies of scale, reallocation, competition and spillover channels. To study the net impact of these effects, we constructed trade-related variables such as relative import price, import penetration and export intensity for a panel of 17 two-digit organized manufacturing sector industries from 1980 to 2013. During this period, the manufacturing sector witnessed considerable liberalization and openness coupled with an increase in manufacturing growth and productivity, especially in the recent decades. The panel econometric estimation based on random effect modelling reveals that the productivity-enhancing effects of economies of scale, reallocation and spillover largely operate through imports and become prominent after 1–2-year lag. In the short period, there is some evidence of dominance of negative economies of scale induced by import competition. Although we find a positive association between exports and productivity during all selected periods, the relationship is found to be statistically significant only in the current period. Overall, the trade linked productivity gains is channelled through imports, which persist over time. This reveals that the impact of trade on manufacturing productivity in India is not static but dynamic in nature.

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  • R. Rijesh, 2019. "International Trade and Productivity Growth in Indian Industry: Evidence from the Organized Manufacturing Sector," Journal of South Asian Development, , vol. 14(1), pages 1-39, April.
  • Handle: RePEc:sae:soudev:v:14:y:2019:i:1:p:1-39
    DOI: 10.1177/0973174119839878
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    2. Weilin Liu, 2022. "Did Trade Liberalization Boost Total Factor Productivity Growth in Manufacturing in India in the 1990s?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 43, pages 110-139, Fall.
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    5. R. Rijesh, 2023. "Economic Liberalisation, Structural Change and Productivity Growth in Indian Organised Manufacturing Sector, 1991–2016," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 66(1), pages 131-154, March.
    6. Sakshi Aggarwal & Debashis Chakraborty, 2020. "Labour Market Adjustment and Intra-Industry Trade: Empirical Results from Indian Manufacturing Sectors," Journal of South Asian Development, , vol. 15(2), pages 238-269, August.

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