Dean - International Partnerships
Head of the Economics Department
Shiv Nadar University
Evolution of the distribution of plant level productivity
This paper studies the evolution of the distribution of plant level productivity in Indian manufacturing units over a long period of time, starting from 1983-84 and ending in 2012-13 using ASI data. While there are several papers that look at how the mean or the standard deviation of productivity has changed over time, we study how the whole distribution has changed over time. We find that much of the change happens at the middle of the distribution. We find that significantly large number of entries and exits happen at the middle of the distribution. Moreover, there is no significant difference in productivity of plants that enter or exit or continue operations. This is contrary to standard theory which suggests that plants with productivity below some threshold should exit while entering plants are expected to have productivity above a threshold. Further, using dynamic Olley-Pakes decomposition, we find that the contributions to the change in aggregate productivity from entry, exit and surviving plants are indistinguishable. What explains these observations? One possibility is the skill distribution of labor force – we find that the share of high skilled workers (some college or more) is low compared to those who have some schooling, but not college education. This could lead to more imitation than innovation, which in turn can explain the observations mentioned above. We build a dynamic model of entry, exit, imitation, innovation and obsolescence to demonstrate this. We also find education level data from NSSO reflects that high skilled labor, required for innovation, is much lower compared to lower skilled labor. This results in lower innovation compared to imitation.