COST STRUCTURE OF INDIAN MANUFACTURING SECTOR, 1971-2003

S Seshaiah () and I.R.S. Sarma

Regional and Sectoral Economic Studies, 2007, vol. 7, issue 1, 19-32

Abstract: In this paper an attempt is made to analyze the cost structure of Indian manufacturing sector. The study refers to the period 1970-2003. A separate analysis has been carried out for the post (1991-2003) as well as pre (1970-1990) liberalization periods. This analysis is done by estimating a translog cost function in which capital, labour, energy, materials and liberalization index (a proxy for technology, reduced trade restrictions, technology penetration) are the input determinants. The input substitution possibilities (pair-wise) have been obtained. Further, factors influencing cost of Indian manufacturing sector have also been identified. The results reveal that the marginal share of inputs remains the same in all the periods while the average share has increased during the post liberalization and overall periods. The substitution possibilities between capital and labor, labor and energy, energy and materials, have increased during the post-liberalization period and overall periods compared to the pre-liberalization period. The own price elasticities of capital, labor, energy, material and output have been negative, indicating that the demand curve for these inputs is downward sloping, and further that the nature of these inputs is highly elastic.

Keywords: Productivity; Translog cost function; Elasticity; Liberalization (search for similar items in EconPapers)
Date: 2007
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