Productivity Trends in India’s Energy Intensive Industries

Abstract

This paper reports on an analysis of productivity growth and input trends in six energy intensive sectors of the Indian economy, using growth accounting and econometric methods. The econometric work estimates rates and factor price biases of technological change using a translog production model with an explicit relationship defined for technological change. Estimates of ownprice responses indicate that raising energy prices would be an effective carbon abatement policy for India. At the same time, our results suggest that, as with previous findings on the U.S. economy, such policies in India could have negative long run effects on productivity in these sectors. Inter-input substitution possibilities are relatively weak, so that such policies might have negative short and medium term effects on sectoral growth. Our study provides information relevant for the analysis of costs and benefits of carbon abatement policies applied to India and thus contributes to the emerging body of modeling and analysis of global climate policy.