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A Total Factor Productivity-Capital Accumulation Hypothesis of India’s Growth Transitions

Kevin Nell ()

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper re-examines the role of physical capital accumulation in the Indian economy over the period 1953-2010. As an alternative to the orthodox total factor productivity (TFP) view, the paper develops a combined TFP-capital accumulation hypothesis of growth transitions. The results show that the first phase of India’s faster-growing regime during 1980-2002 was mainly TFP driven. However, the large increase in uninvested profits accumulated during the first phase together with evidence of a sharp rise in the productivity of capital and an exogenous saving/investment rate implies that India had a significant amount of untapped long-run growth potential. Consistent with the prediction of the model, the growth surge experienced during 2003-2007 reflects the capital accumulation-driven part of the growth transition. Despite the turbulent years of the global financial crisis since 2008, the analysis suggests that physical capital accumulation will continue to be a driving force of India’s future growth performance.

Keywords: physical capital accumulation; total factor productivity; Solow model; learning by doing model; growth; India; technical progress function (search for similar items in EconPapers)
JEL-codes: C22 O4 O5 O41 O53 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013-07
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-eff and nep-fdg
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