Lifting the Veil: The Face of TFP in an Indian Rail Mill

The importance of Total Factor Productivity (TFP) in explaining output changes is widely accepted, yet its sources are not well under-stood. We use a proprietary data set on the oor-level operations at the Bhilai Rail and Structural Mill (RSM) in India to understand the determinants of changes plant productivity between January 2000 and We are grateful to Ana Cecilia Fieler, George Alessandria for comments. Sanghamitra Das passed away unexpectedly in December 2008. 1 March 2003. During this period there was a 35 % increase in output with minimal changes in the stock of physical capital or the num-ber of employees, but sizable reductions in the number and duration of various types of production delays. We model interruptions to the production process as a function of worker characteristics and \u85nd that two-thirds of the delay reductions are attributable to training aimed at improving rail quality. Overall, changes in delays account for about half the changes in productivity. Our results provide some explanation for the large within-industry di¤erences in productivity observed in de-veloping countries and also suggest that speci\u85c knowledge-enhancing investments can have very high returns. Our approach also provides an example of how detailed data on production processes can be fruit-fully used to better understand TFP changes, which have typically been treated as residuals in growth-accounting exercises