Trade and Investment Liberalization in India: Implications for Productivity

Since 1991, India has witnessed wide-ranging economic reforms in its policies governing international trade and foreign direct investment (FDI) flows which has consequently led to a dramatic rise in both trade and FDI flows since then. Using firm-level panel data, this paper investigates whether these trends have contributed to significant productivity improvements since 2000, as measured by total factor productivity (TFP). In addition, the paper also examines the determinants of TFP across a range of different industry categories. The results suggest the existence of significant productivity improvements since 2000 and also identify variables such as imports of raw materials and capital goods, size of operation, quality of employment captured by wage rates, and technology imports as crucial determinants of productivity.