An Application of Economic Capacity Utilization to the Measurement of Total Factor Productivity Growth: Empirical Evidence from Indian Fertilizer Industry

Ray Sarbapriya () and Kumar Pal Mihir ()
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Ray Sarbapriya: 2Dept. of commerce, Shyampur Siddheswari Mahavidyalaya, under Calcutta University, Howrah, West Bengal , India, 27/ 4 Chowdhury Para Second Bye Lane, P.O- Santragachi, District- Howrah, PIN-711104, West Bengal, India
Kumar Pal Mihir: Dept. of Economics, Vidyasagar University, Paschim Medinipur, West Bengal, India

Journal for Economic Forecasting, 2011, issue 1, 125-142

Abstract: This paper attempts to measure the productivity performance of the Indian fertilizer industry at the aggregate level, with adjustment for variations in capacity utilization during the period from 1979-80 to 2003-04. Using a translog specification, our econometric analysis reveals a decelerating trend in total factor productivity growth resulting in negative impact of economic reforms on the Indian fertilizer industry. The study also indicates a declining trend of economic capacity utilization suggesting the adverse impact of liberalization after the mid 90’s, due to slow increases in actual output; this probably results from stagnated demand and rapid expansion of capacity as a result of the abolition of the licensing rule consequent to economic reforms. Total output growth in the Indian fertilizer industry is found to be mainly as a result of inputaccumulation rather than productivity driven. The analysis reveals that a correction for capacity utilization mitigates the variations in total factor productivity growth.

Keywords: Total Factor Productivity growth; capacity utilization; fertilizer; industry; economic reforms (search for similar items in EconPapers)
JEL-codes: L65 (search for similar items in EconPapers)
Date: 2011
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