Aggregate Productivity Growth in Indian Manufacturing: An Application of Domar Aggregation

Deb Kusum Das, Gunajit Kalita
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Productivity growth in Indian manufacturing is an important driver of overall growth,
yet the issues related to its measurement have still not been resolved. The issue of
how to compute an aggregate productivity measure holds significance for two
reasons: one, the productivity of a firm should reflect the productivity of the lower
levels, which comprise the aggregate; and two, aggregate productivity should also
emphasize the importance of inter-industry transactions in an analysis of productivity
growth. Contributions from Domar (1961), Hulten (1978) and Jorgenson et al. (1987)
have addressed the issue of measuring aggregate productivity. We have made an
attempt to compute the aggregate productivity growth using the Domar aggregation
technique. Building up from the Total Factor Productivity Growth (TFPG) estimates
for 3-digit industries, we have used Domar weights to computed total factor
productivity (TFP) growth for selected 10, 2-digit industries for the period 1980-2000.
Comparing the estimates based on the Domar aggregation technique with those based
on the traditional aggregate value added approach, we observe that the preferred
estimates are about half of that obtained by the traditional aggregate value added
method. This holds immense significance for any underlying productivity numbers.