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A Total Factor Productivity-Capital Accumulation Hypothesis of India’s Growth Transitions

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  • Kevin S. Nell

    (Center for Economics and Finance, Faculty of Economics, University of Porto)

Abstract

This paper re-examines the role of physical capital accumulation in the Indian economy over the period 1953-2010. As an alternative to the orthodox total factor productivity (TFP) view, the paper develops a combined TFP-capital accumulation hypothesis of growth transitions. The results show that the first phase of India’s faster-growing regime during 1980-2002 was mainly TFP driven. However, the large increase in uninvested profits accumulated during the first phase together with evidence of a sharp rise in the productivity of capital and an exogenous saving/investment rate implies that India had a significant amount of untapped long-run growth potential. Consistent with the prediction of the model, the growth surge experienced during 2003-2007 reflects the capital accumulation-driven part of the growth transition. Despite the turbulent years of the global financial crisis since 2008, the analysis suggests that physical capital accumulation will continue to be a driving force of India’s future growth performance.

Suggested Citation

  • Kevin S. Nell, 2013. "A Total Factor Productivity-Capital Accumulation Hypothesis of India’s Growth Transitions," CEF.UP Working Papers 1313, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:1313
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    References listed on IDEAS

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    More about this item

    Keywords

    physical capital accumulation; total factor productivity; Solow model; learning by doing model; growth; India; technical progress function;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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