Effects of dynamic variables on industrial output in one of the world’s fastest-growing countries: case evidence from India

Abstract

Increase in industrial output is an important indicator to identify the socioeconomic development of a nation. India is one of the fastest-growing economies in the world; using its comparative advantage and capitalizing its educated youths, it tries to be as a hub of manufacturing in the world map. Under these circumstances, the present study attempts to identify the effects of dynamic macroeconomic variables on manufacturing output in India using secondary data from 1990Q1 to 2017Q4 sourced from the World Bank, and IMF, RBI, ASI and published materials are other source of information. This study considered variables such as industrial production, population, agricultural output, exchange rate, export, oil price, and gross fixed capital formation. We employed ADF and PP unit root tests, Johansen co-integration test, and error correction model based on Granger causality test. This study found that manufacturing output was driven by agricultural output, export and population. The chief role played by the agricultural output in affecting the manufacturing output suggested that the agricultural sector is still serving as engine of economic development in general and manufacturing output in particular in the case of fast-growing Indian economy. Further, investment on education, health, trainings and other capacity building in the form of human capital on population will lead the industrial sector to get strengthened through observing entrepreneurial spirit, high skilled labours, technicians, and managers. Finally, it is suggested that the superior focus on tapping the potential market on the planet, research and development, mechanization, proper quality control, skill development, better management, and effective marketing will give a new life to the manufacturing sector of the fast-growing Indian economy.

Assessing the Performance and Factors Affecting Industrial Development in Indian States: An Empirical Analysis

“…The result suggests that gross capital formation is helpful in increasing the gross value added of industries in India. Sankaran et al (2020) also observed the significant contribution of gross fixed capital formation to industrial development in India. The regression coefficient of per person emoluments with gross value added of industries was positive and statistically significant.…”

“…Thampy and Tiwary (2021) have examined the association of the local banking sector and human capital with the development of the manufacturing sector. Sankaran et al (2020) have identified the impact of macro-economic variables on manufacturing output in India using national-level data. Finally, taking a broader view, Maroof et al (2019) have assessed the determinants of industrial development in South Asian countries, and Singh, Singh, and Ashraf (2020) have examined the impact of STDI, IPPI and SEDI on manufacturing value added in 41 developed and developing countries.…”

“…Existing studies have used different variables, such as gross output, gross value added, employment and share of industrial sector in GDP, to define the industrial development of a country (Maroof et al, 2019;Mohsen, Chua, & Sab, 2015;Sankaran et al, 2020). Industrial output is significantly associated with the number of factories, number of industrial workers, education level of workers, skills and knowledge of workers, number of start-ups, infrastructure development, financial development, credit to industries, research & development (R&D) activities, science & technological development, oil price, inflation, exchange rate, exports and imports, government policies, availability of raw materials, foreign direct investment, foreign trade, and intellectual property rights (Maroof et al, 2019;Mohsen et al, 2015;Sankaran et al, 2020;Singh et al, 2019;. The agricultural sector meets the industries' requirements for raw materials; thus, industrial output is also positively associated with growth of the agricultural sector (Mohsen et al, 2015).…”

“…Jelilov and Iheoma (2016) Therefore, in this study, gross value added was used as the dependent variable, while total persons engaged, gross capital formation, total inputs, labor productivity (i.e., the ratio of gross value added to total persons engaged), per person emoluments (i.e., the ratio of total emolument to total persons engaged), capital intensity, credit to industry by scheduled commercial banks, annual population growth, and literacy rate were considered the independent variables. Mohsen et al (2015); Maroof et al (2019); Sankaran et al (2020); Kołodziejczak (2020); Thampy and Tiwary (2021); Daharwal and Mishra (2021) also used a similar set of variables to examine their association with industrial development and the manufacturing sector in different countries. A summary of the studied variables is provided in Table 2.…”

“…also examined the impact of industrial output, foreign direct investment, interest rate, foreign exchange rate, and inflation rate on economic growth in ten selected economies Sankaran et al (2020). identified the impact of agricultural output, gross capital formation and gross fixed capital formation on industrial output in India.…”