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Revisiting Factor Proportions in the Indian Economy – A Study with Focus on Tradable Sectors

Author

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  • Tandon, Anjali
Abstract
Factor productivity is traditionally studied through the measurement of factor intensity for sectors of the economy. However, this measurement is restricted to their direct use within the sector ignoring their embeddedness in upstream sectors. Therefore, an underestimation of the factor intensities across economic sectors cannot be ruled out if evaluated using direct factor contents alone. An a priori external influence on demand (through exports) and investment (through FDI), is expected to shape the allocation of production and subsequent factor demand. Thus, this article examines the structural coherence of factor proportions with output, exports and FDI, separately for each tradable sector. Likewise for factor intensities, tradables are often studied in isolation from their interaction with the non-tradables. Using of Semi Input-Output (SIO) modelling, the factor proportions (K-to-L) show a significant underestimation of the capital intensity for the economy when compared with direct proportions. Although the output and export distributions are largely aligned with factor endowments, the distribution of FDI is skewed towards sectors with high capital proportions. Thus, FDI is unlikely to be solution to employment generation without re-orienting and enhancing the existing skills.

Suggested Citation

  • Tandon, Anjali, 2020. "Revisiting Factor Proportions in the Indian Economy – A Study with Focus on Tradable Sectors," MPRA Paper 112773, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112773
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    References listed on IDEAS

    as
    1. Poonam Gupta & Rana Hasan & Utsav Kumar, "undated". "What Constrains Indian Manufacturing?," Indian Council for Research on International Economic Relations, New Delhi Working Papers 211, Indian Council for Research on International Economic Relations, New Delhi, India.
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    4. Ms. Natasha X Che, 2012. "Factor Endowment, Structural Coherence, and Economic Growth," IMF Working Papers 2012/165, International Monetary Fund.
    5. Rui Mano & Marola Castillo, 2015. "The Level of Productivity in Traded and Non-Traded Sectors for a Large Panel of Countries," IMF Working Papers 2015/048, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Factor proportion; tradables; Input-Output; labour intensive; FDI; India; KLEMS.;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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