Productivity and capital investments: An empirical study of three manufacturing industries in India

Investments in the Indian manufacturing sector do not seem to match the rate of growth of sales. This study empirically determines factors explaining within-firm variation in investment growth in three industries—auto components, chemicals and electronics—using panel data from 2002 to 2006. The results show that common firm-specific factors and some industry-specific factors, explain variation in investments within firms. Capital productivity is a significant factor in auto components and chemicals while capital intensity is significant for chemicals and electronics. Labour productivity is significant only for the electronics industry. The results suggest that there is a need to manage productivity improvements from the growth point of view and not only for efficiency improvements