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Scope of Mitigating Recession in Output of Indian Textile Industry through Productivity Growth: Evidence Using Nonparametric Data Envelopment Analysis

Productivity Growth in the Manufacturing Sector

ISBN: 978-1-80071-095-5, eISBN: 978-1-80071-094-8

Publication date: 3 June 2021


This chapter measures total factor productivity growth (TFPG) using Malmquist productivity index (MPI) and the growth of MPI of Indian Textile Industry employing nonparametric data envelopment analysis (DEA), during 1995–2016, exploring company (firm) level Center for Monitoring of Indian Economy (CMIE) Prowess data; examines whether TFPG has improved after the withdrawal of multifiber trade agreement (MFA) since 2005; decomposes TFPG into technical change (TC), technical efficiency change (TEC), and scale efficiency change (SEC); and explains the factors behind the movement of TFPG, considering the effect of R&D (RD), exports (EX), marketing expenditures (MKTs) advertisement expenditures (ADVs), imports (IMP), using second-stage panel regression. Empirical evidence supports fluctuating pattern of TFPG during 1995–2016, with a marginal declining tendency. TFPG has increased in 1999–2000, 2000–01, 2009–10, and 2012–13. After dismantling MFA, MPI level has significantly declined, with an increase in its growth rate, but the increase is not statistically significant. The effect of EX, RD, ADV are nonlinear, U-shaped, and IMP and MKT are inverted U-shaped, implying that the sign effect of any variable depends on its size. There are joint interaction effects of (a) RD and EX; RD and MKT which are positive, (b) ADV and MKT as represented by the ratio (ADV/MKT), having nonlinear inverted U-shaped relation. The joint interaction effect supports that the impact of one variable depends on the magnitude of other. The marginal effect of EX, IMP, and ADV are positive; increase in these variables promotes TFPG. The greater role of ADV over MKT is evident. The marginal effect of RD is negative; the average level of RD is too low to generate positive effects, and, thus, there is an urgency of increasing RD. The promising part of the decomposition analysis is that highest contribution to growth rate of TFPG is the growth rate of TEC followed by growth rate of TC, and thus by increasing TEC and TC, higher growth rate of TFPG is achieved and may be beneficial in the long run and may lead to absorption of economic shocks for an economy facing recession in its output growth. Some policy suggestions are made for boosting up TFPG.



De, S. and Ghose, A. (2021), "Scope of Mitigating Recession in Output of Indian Textile Industry through Productivity Growth: Evidence Using Nonparametric Data Envelopment Analysis", Pal, M.K. (Ed.) Productivity Growth in the Manufacturing Sector, Emerald Publishing Limited, Bingley, pp. 183-203.



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