Estimating total Factor Productivity and Its components - Evidence from Manufacturing sector of Tamilnadu, India

The study applied Data Envelopment Analysis (DEA) to estimate total factor productivity growth and to identify the sources of productivity growth in the manufacturing sector of Tamil Nadu. The study considered 12 major sectors and estimated productivity growth and the major sources of productivity growth during the period 1981-82 to 2007-08. The study found that the productivity growth in the industrial sector of Tamil Nadu at the aggregate level during the test period was almost nil. While it is the case at the aggregate level, there are mixed results at the sectoral level. During the pre-reform period, there was significantly higher productivity growth in almost all the sectors contributed mainly by the improvements in efficiency. On other hand, there was productivity deterioration in the post-reform period since almost all the sectors witnessed negative productivity growth despite a technical change in the post-reform period. The study based on the empirical findings suggests that there will be productivity growth only if any improvement in the technology is accompanied by the corresponding improvement in the efficiency with which the technology can be turned into productivity gains. A well developed and skilled labour force along with the improvements in the technological developments will lead to higher productivity growth in the manufacturing sector both at the aggregate and sectoral level.