Impact of Human Capital on Manufacturing Productivity Growth in India

  • Vinish Kathuria
  • S. N. Rajesh Raj
  • Kunal Sen


Empirical studies on total factor productivity growth (TFPG) in developing countries highlight trade openness, research and development and market structure as being the most important determinants of TFPG. The role of human capital remains overlooked in the literature on the determinants of TFPG of Indian manufacturing sector. In this chapter, we look into the role of human capital formation as proxied by literacy rate in influencing TFPG, using Indian manufacturing as a case study. To compute TFPG, we use firm-level data for both the formal and informal manufacturing sector. We correct for the simultaneity bias associated with the production function approach for TFPG estimation by employing a method recently developed by Levinsohn and Petrin. We compute period-average adult literacy rate for 15 Indian states over the period 1994–2005 and then use them in TFP growth equations to estimate the effect of literacy on TFPG. The results indicate that literacy has positively affected the TFP growth of Indian industry. The effect however is primarily for the formal sector.


Human Capital Productivity Growth Manufacturing Sector Informal Sector Total Factor Productivity Growth 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



This chapter forms a part of a larger study examining the effect of state-business relations on the productivity of Indian firms funded by IPPG – University of Manchester, UK ( We are thankful to IPPG – University of Manchester and DFID – UK for financial support. We are also thankful to the Central Statistical Organisation, for providing us access to the data, and to Nilachal Ray for his many suggestions and comments. An earlier version of this chapter looking into state-business relations on productivity was presented at the 8th International Industrial Organization conference held in Vancouver during 14–16 May 2010. The authors thank conference participants for helpful comments. The usual disclaimers apply.


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Copyright information

© Springer India 2013

Authors and Affiliations

  • Vinish Kathuria
    • 1
  • S. N. Rajesh Raj
    • 2
  • Kunal Sen
    • 3
  1. 1.Indian Institute of Technology BombaySJMSOMMumbaiIndia
  2. 2.Centre for Multi-Disciplinary Development ResearchDharwadIndia
  3. 3.IDPM, University of ManchesterManchesterUK

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