Human Capital and Development The Indian Experience
The papers included in this volume cover several aspects of human capital. It starts with the role of human capital in influencing productivity, employment and growth of employment. The chapters show that Indian States that have been neglecting schooling
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Impact of Human Capital on Manufacturing Productivity Growth in India Vinish Kathuria, S.N. Rajesh Raj, and Kunal Sen
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Introduction
It is well established that long-term growth and development across countries is driven to a large extent by productivity growth (Easterly and Levine 2001). Several studies exist that have attempted to examine the effect of different factors influencing productivity growth using industries or firms as units of analysis. Most of these studies highlight the role of trade openness, research and development (R&D) and market structure as major determinants of industry or firm productivity growth (see, e.g. Bartelsman and Doms 2000; Harriss 1999; Tybout 2000; Chand and Sen 2002; Goldar and Kumari 2003; Isaksson 2007; Mitra and Ural 2007). A considerable body of research has also concentrated on the role of human capital investment in explaining the level and variation in production and earnings in the manufacturing sector (Batra and Tan 2000; Dearden et al. 2000; Jones 2001; Takii 2003; Ilmakunnas et al. 2004; Nielsen and Rosholm 2002). While there has been significant amount of literature examining the contribution of human capital to firm growth and productivity, we are not aware of any study that has attempted to analyse the contribution of human capital (proxied by education) on productivity growth of the manufacturing firms in India, especially at the subnational (state) level. Taking cognizance of it, this chapter examines the role of human capital formation proxied by literacy in explaining productivity growth across industries.
V. Kathuria (*) SJMSOM, Indian Institute of Technology Bombay, Mumbai, India e-mail: [email protected] S.N. Rajesh Raj Centre for Multi-Disciplinary Development Research, Dharwad, India e-mail: [email protected] K. Sen IDPM, University of Manchester, Manchester, UK e-mail: [email protected] N.S. Siddharthan and K. Narayanan (eds.), Human Capital and Development: The Indian Experience, DOI 10.1007/978-81-322-0857-0_3, © Springer India 2013
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V. Kathuria et al.
It is argued that education plays a significant role in a rapidly changing work environment due to technological advances (Welch 1970; Mincer 1989; Hellerstein and Neumark 2004). The ability of workers to process new information becomes increasingly important in an environment of technological advancement. According to this view, the better educated workers enjoy comparative advantage in adapting to new technologies than less educated ones. As a result, productivity of better educated workers is relatively greater than the less educated ones (Bartel and Lichtenberg 1987; Tan and Lopez-Acevedo 2002; Hellerstein and Neumark 2004). In this chapter, we use the human capital framework to examine the relationship between education and total factor productivity growth (TFPG) in the manufacturing sector in India by using industries as units of analysis. Our empirical context is Indian manufacturing, and we examine whether the variation in TFPG for the same set of industries ac
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