Economic Reforms, Technical Change and Efficiency Change: Firm level Evidence from Capital Goods Industries in India

This paper examines two important components of the total factor productivity growth, namely technical change and technical efficiency change of firms belonging to the capital goods producing industries. Empirical analysis of these two components is motivated by the policy changes that capital goods producing industries were subjected to during the 1990s as well as by the existing evidences on the total factor productivity growth in Indian manufacturing industry. Technical change and technical efficiency change are estimated in a single step, using a stochastic frontier production function. The results of the study show that all the industries studied experienced a significant improvement in the rate of technological progress during the post reform period. However, the evidence on the technical efficiency shows that not only the level of technical efficiency is lower during the post reform period, but also the rate of decline in the technical efficiency is higher during this period in all industries except in one. Thus the paper provides further insight into the productivity performance of these industries during the post reform period.