Abstract for “Role of Capital in India's Economic Growth: Capital Stock versus Capital Services”

Measurement of total factor productivity (TFP) is an important aspect of economic analysis and policy making. Appropriate measures of inputs and output are essential for better understanding of TFP and the measurement of capital input for productivity analysis is perhaps the most difficult of all input measurement. This is particularly true in developing countries, where lack of data hinders researchers and statisticians in using theoretically relevant measures of capital input for productivity analysis. This paper is an attempt to measure capital services in India, both for aggregate economy and its 26 sub-sectors following the famous Jorgenson’s methodology. To our knowledge, this is the first attempt to construct a consistent series of capital service taking asset heterogeneity into account. There have been many studies on productivity in India, with particular focus on organized manufacturing. The measurement of capital input in most studies is however, far from satisfactory (Goldar, 1986). There are many issues ranging from not giving allowance for depreciation, leading to overestimation of capital stock, to simply aggregating across assets without taking account of the possible effects of changing composition of investment. A country’s capital stock is characterized by the co-existence of various assets and vintages at the same time. These assets and vintages vary in terms of their marginal productivities, and therefore th