Intertemporal efficiency variations in Indian manufacturing industries

One of the important sources of growth of an economy is the efficient and productive use of existing resources. The Indian industries after three decades of protected industrial culture has produced an inefficient regime. This is supposed to be corrected by the on-going economic liberalization. An application of Time-Varying Frontier Production Function approach with both fixed and variable ranking models in Indian industries helps in testing the hypothesis of intertemporal movement of technical efficiencies (TE) on which the current globalization program is based. The results are significantly conclusive: TEs have been falling over time. This along with TFP changes helps us to understand the nature of industrial development in recent past. An inquiry into the sources of inter-industry efficiency variations shows that skill, labor productivity and profit play significantly positive role, while capital intensity works against general beliefs.

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