Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing

The impact of trade liberalisation on productivity growth is still an empirical issue; the
theoretical literature is as yet unclear on the direction of any such association. This paper
develops an analytical framework and employs it to empirically test if trade liberalisation
in Indian manufacturing has raised total factor productivity (TFP) growth. The answer is
in the affirmative. Our results also support a key postulate of the new growth theories
that liberalisation of the intermediate good sectors has a larger favourable impact on TFP
growth than that of the final good sectors.