The Role of Technology Diffusion in Determining the Rate of Total Factor Productivity Growth in Industrial Sector in India

In this paper the role of technology in determining the rate of total factor productivity growth in industrial sector in India is studied for the period 1981–82 to 2011–12. As the fact that FDI justifies itself as data carrying adequate information on foreign technology is well-established in the economic literature we use FDI data to capture the role of foreign technology that flows to Indian industries since nineties. Considering the period from 1981–82 to 1990–91 as the pre-liberalisation era in Indian economy when no FDI inflow occurred we do here an attempt to see whether implementation of the New Economic Policy in 1990s cause any positive move in the TFPG figures. The Total Factor Productivity Growth (TFPG) for the industrial sector for the period has been computed by the author and it shows that since early nineties TFPG of industrial sector is increasing gradually. As far as the relation between TFPG and its determinants FDI and Openness are concerned the data shows that both of them are significant in determining TFPG series and also that time is itself a good explainer of the variable.