Productivity and Openness in Indian Economy

The economic strategies of Indian economy have been very unique since independence. Using the conventional growth accounting method the study first attempts to estimate the aggregate TFP for the Indian economy and then examines the impact of trade openness on TFP growth. It has been observed that TFP growth in India has been erratic in nature. During 1960s average TFP growth in India was although positive but it was very low close to zero. Similarly, the economy experienced technological regress in the economy instead of technical progress during 1970s due to the average negative TFP growth. However, the economy's overall productivity has increased considerably after the initiation of internal economic reform measures during 1980s. The economy has been experiencing continuous rise in TFP growth since the introduction of external economic reforms. Granger Causality tests show that there is a one way relationship between trade openness and TFP growth for Indian economy. The econometric analysis reveals that trade openness in India has affected TFP growth positively and significantly. Therefore, the study suggests that formulation of more and more outward oriented policies would further in enhancing the productivity of the economy. Copyright (C) 2012 JAEBR