Is Maharashtra Lagging Behind In Total Factor Productivity? An Analysis for 1981-1998

This paper analyses total factor productivity growth in the manufacturing sectors in Maharashtra, Tamil Nadu, Andhra Pradesh, Gujarat and Karnataka, using a fixed effects panel data technique for estimating manufacturing sector wise production functions. The main argument of the paper is that computation of total factor productivity growth assumes constant returns to scale and competitive factor markets. Given this requirement, it is not theoretically correct to estimate individual sector specific Cobb-Douglas production functions, which will yield, sector specific labour and capital elasticities. Under the assumption of CRS and perfect competition in factor markets, labour and capital elasticities must be identical across sectors. Hence, fixed effects panel data model is used to estimate TFPG. We estimate models for Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu and rest of India.