A Model for Impact of Financial Developments and Industries Level Total Factor Productivity on Indian Manufacturing

By : Manoj Kumar

Page No: 52-84

Abstract
In this paper we use firms’ data to study the effects of financial development on total factor productivity of India’s manufacturing sector between 1990 and 2018. We find evidence that financial development has significantly enhanced firm-level TFP in the sector. The evidence is stronger when micro indicators of financial development are used. The firms in Indian private sector need better access to the banking system, while the firms in the government sector and the foreign sector reveal the need for accessing the capital market. We find a significant relationship between financial development and industry-level TFP growth when controlling for time, and industry-time fixed effects. Our results are both statistically and economically significant. Our results are robust to different samples and specifications. Our results suggest that policies favoring financial development in India should be pursued further in order for the largest democracy in the world to advance its economic growth.

Author :
Manoj Kumar
SP Jain School of Global Management, Singapore.

DOI: DOI-https://doi.org/10.32381/IAPQRT.2019.44.01.4