Relationship between Economic Growth and Fixed Capital of the Manufacturing Sector: An Empirical Analysis of the North-Indian States

Investment in the fixed capital is highly indispensable for the industrial development, which ultimately has a strong bearing on the growth of the economy The main objective of the present study is to assess the impact of fixed capital on the economic growth of the manufacturing sector for the northern region in the post-reform period(1992–2014). The economic growth of the manufacturing sector at the sub-national level can be reflected by the Net State Domestic Product (NSDP) of the said sector for each state. The northern states have been selected specifically because of its significant sizable contribution in the growth of the Net State Domestic Product of the manufacturing sector. To study the relationship between the amount of fixed capital and the NSDP of the manufacturing sector, double log regression analysis has been conducted and elasticity coefficients have been calculated wherein, the state of Punjab has shown the highest elasticity followed by Himachal Pradesh. Additionally, all the elasticity coefficients came out to be statistically significant and the results indicate that among the five major north Indian states, the percentage of explained variations by the fixed capital in the economic growth was maximally reflected by Haryana followed by Rajasthan and Himachal Pradesh.