Do economic reforms matter for manufacturing productivity? Evidence from the Indian experience

Using data on 3-digit industry for 1981-2004, the study examines the association between total factor productivity and economic reforms. We first obtain the industry-level productivity numbers using advanced econometric techniques and thereafter ascertain the time frame over which economic reforms impact productivity. The evidence suggests that productivity growth is not reliably higher after reforms than prior to reforms. At the sectoral level, the interest rate channel and also the financial accelerator and labor market variables play an important role in explaining productivity improvements. At the macroeconomic level, trade policy, foreign direct investment and credit availability are found to be important in accounting for productivity growth.

► Examine the interface between economic reforms and productivity ► The focus is on Indian industries at the 3-digit level. ► Examine the role of industry and macroeconomic factors on productivity ► Importance of financial accelerator and interest rate channels ► Trade policy, FDI and credit are macroeconomic factors affecting productivity.