Total Factor Productivity and Openness in Indian Economy: 1970–2011

Published date01 February 2019
DOI10.1177/0015732518810835
Date01 February 2019
Subject MatterCommentary
Total Factor Productivity
and Openness in Indian
Economy: 1970–2011
Salman Haider1
Aadil Ahmad Ganaie1,2
Bandi Kamaiah3
Abstract
The present article aims to explore the causal link between total factor produc-
tivity (TFP) and openness in the Indian economy during the period 1970–2011.
The study employs the cointegration and error-correction approach, along
with Granger causality test. The TFP index used in the study is based on the
Tornqvist index and export plus import as a percentage of GDP is used as
a measure of openness. It is found that trade openness is cointegrated with
TFP using the autoregressive distributed lag (ARDL) method. In the short run,
there is evidence of unidirectional Granger causality running from trade open-
ness to total factor productivity. The finding suggests that heavy protection for
the domestic industry would deprive the country of efficiency gains in the long
run. The resultant effect would be the wastage of resources. For a developing
country, lower efficiency levels will halt the process of development. However,
enhancement of TFP can not only be due to increase in trade, along with it, the
investment in human and physical capital are also better avenues to be taken
care of.
JEL Codes: F10 O40 O33 C22
Keywords
India, cointegration, trade openness, causality
Foreign Trade Review
54(1) 46–57, 2019
©2018 Indian Institute of
Foreign Trade
Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/0015732518810835
journals.sagepub.com/home/ftr
Commentary
1 PhD Scholar, School of Economics, University of Hyderabad, Hyderabad, Telangana, India.
2 Lecturer, HSS Damhall, Anantnag, Jammu and Kashmir, India.
3 Emeritus Professor, School of Economics, University of Hyderabad, Hyderabad, India.
Corresponding author:
Aadil Ahmad Ganaie, PhD Scholar, School of Economics, University of Hyderabad, Hyderabad
500046, Telangana, India.
E-mail: aadilganaie@uohyd.ac.in

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