Indian Journal of Economics and Development

Open Access Open Access  Restricted Access Subscription Access

Decomposition of Total Factor Productivity (TFP) of Indian Software Industry


Affiliations
1 Department of Economic Studies, Central University of Punjab, Bathinda - 151001, India
2 Department of Economic Studies, Central University of Punjab, Bathinda 151001, India
 

Objectives: To decompose the total factor productivity of Indian Software industry into efficiency change (catch up) and technical change (innovation).

Methodology: The study is entirely based on secondary sources of data. The data is obtained from various sources, which includes World Bank, Reserve Bank of India (RBI), National Association of Software and Services Companies (NASSCOM), CMIE Prowess, and Indian Brand Equity Foundation (IBEF). The study has used the Malmquist Productivity Index in order to carry out the analyses for decomposition of total factor productivity into innovation and catch up.

Findings: The results show that during the study period, the TFP has increased by an average rate of 3 percent. The study found that out of 100 firms, 45 firms have increased total factor productivity. Most firms are trying to catch up their peers rather than surpassing them. It is clearly supported by the analysis that out of 100 firms 82 have shown an increase in efficiency change (Catch up) while as only 8 firms have shown growth in technical change (innovative).

Improvements/Applications: Indian IT sector is required to follow new directions. In order to survive in the long run with the same zeal, the industry demands to consolidate its strengths and move up the value chain if it has to maintain its head start on the competition. Most importantly, it will have to invest substantially in research and development and create linkages to encourage career prospects for researchers in engineering. As a matter of necessity, the companies in the industry should focus on the path-breaking technology rather than following the linear process.  


Keywords

Software Industry, Total Factor Productivity, Technical Efficiency Change, Technical Change, Research and Development.
User
Notifications

  • S. Dasgupta. Tertiary production in economic development. Economic and Political Weekly.1956; 1-2.

  • World Bank. https://data.worldbank.org/indicator/BX.GSR.NFSV.CD. Date Accessed: 2017.

  • IBEF. Services Sector in India. http://www.ibef.org/industry/services.aspx. Date Accessed: 01/2019.

  • R. Rowthorn, K. Coutts. De-industrialisation and the Balance of payments in advanced economies. Centre for Business Research, University of Cambridge. 2013; 1-40.

  • S.K. Bhatia. Determinants of export services of USA with its Asian partners: A panel data analysis. Eurasian Journal of Business and Economics. 2011; 4(8), 101-117.

  • J. P. Golson. The impact of technological change on organization management. In Proceedings of the 15th annual southeast regional conference. 1977; 293-299.

  • B. Subhash. India’s Software Industry, Technology, Adaptation, and Exports: How some Developing Countries Got It Right. World Bank. 2006; 95-124.

  • IT industry in transformation: opportunities and challenges for India.http://eprints.lse.ac.uk/38353/1/ARCWP29-Mitra.pdf. Date Accessed: 11/2009.

  • N. Kumar. Indian software industry development: international and national perspective. Economic and Political Weekly. 2001; 36(45), 4278-4290.

  • NASSCOM. http://www.nasscom.in/indian-itbpo-industry Date Accessed: 2017.

  • K. Singh, S.K. Bhatia. Whether FDI Or Exports Enhance Innovation: Evidence From Indian Manufacturing Firms, 2001-2012. Revista Galega de Economia. 2017; 26(3), 19-32.

  • N. Kumar, K.J. Joseph. Export of software and business process outsourcing from developing countries: Lessons from the Indian experience. Asia-Pacific Trade and Investment Review. 2005; 1(1), 91-110.

  • S. Annapoorna, S.T. Bagalkoti. Development of IT sector in India: analysis of reasons and challenges. Journal of Economics and Sustainable Development. 2011; 2 (2), 1-8.

  • IBEF. IT & ITeS Industry in India. https://www.ibef.org/industry/information-technology-india.aspx. Date Accessed: 12/2018.

  • P.M. Romer. Endogenous technological change. Journal of Political Economy. 1990: 98(5, Part 2), S71-S102.

  • G.M. Grossman, E. Helpman. Innovation and growth in the global economy. MIT press. 1993.

  • J. Cortright. New growth theory, technology and learning: a practitioner’s guide. Reviews of Economic Development Literature and Practice: No. 4, U.S. Economic Development Administration. 2001; 1-40.

  • H. Izushi. R. Huggins. Empirical analysis of human capital development and economic growth in Europe. 2004; 1-50.

  • M. Pikkarainen, W. Codenie, N. Boucart, J.A.H. Alvaro, (Eds.). The art of software innovation: eight practice areas to inspire your business. Springer Science & Business Media. 2011.

  • J. Rose. Software innovation: eight work-style heuristics for creative system developers. Software Innovation, Dept. of Computer Science, Aalborg University. 2010; 1-154.

  • R. Fare, S. Grosskopf, D. Margaritis. Malmquist productivity indexes and DEA. In Handbook on data envelopment analysis. Springer, Boston, MA. 2011; 127-149.

  • R. Fare, S. Grosskopf, M. Norris, Z. Zhang. Productivity growth, technical progress, and efficiency change in industrialized countries. The American Economic Review. 1994; 66-83.

  • J.T. Coelli, D.S.P. Rao, C.J.O' Donnell, G.E. Battese. An introduction to efficiency and productivity analysis. Springer Science & Business Media. 2005.

  • D.W. Caves, L.R. Christensen, W.E. Diewert. The economic theory of Index numbers and the measurement of input, output, and productivity. Econometrica: Journal of the Econometric Society. 1982; 50(6), 1393-1414.

  • R. Fare, S. Grosskopf, S.K. Li. Linear programming models for firm and Industry Performance. The Scandinavian Journal of Economics. 1992; 94(4), 599-608.

  • E. Grifell-Tatje, C.K. Lovell. Deregulation and productivity decline: The case of Spanish savings banks. European Economic Review. 1996; 40(6), 1281-1303.

  • S.C. Ray, E. Desli. Productivity growth, technical progress, and efficiency change in industrialized countries: comment. The American Economic Review. 1997; 87(5), 1033-1039.

  • N.A. Bhat, S.K. Bhatia. Indian software industry: performance and efficiency. Journal of Income & Wealth. 2016; 38(1), 73-86.


Abstract Views: 193

PDF Views: 116




  • Decomposition of Total Factor Productivity (TFP) of Indian Software Industry

Abstract Views: 193  |  PDF Views: 116

Authors

Nadeem Ahmad Bhat
Department of Economic Studies, Central University of Punjab, Bathinda - 151001, India
Sandeep Kaur
Department of Economic Studies, Central University of Punjab, Bathinda 151001, India

Abstract


Objectives: To decompose the total factor productivity of Indian Software industry into efficiency change (catch up) and technical change (innovation).

Methodology: The study is entirely based on secondary sources of data. The data is obtained from various sources, which includes World Bank, Reserve Bank of India (RBI), National Association of Software and Services Companies (NASSCOM), CMIE Prowess, and Indian Brand Equity Foundation (IBEF). The study has used the Malmquist Productivity Index in order to carry out the analyses for decomposition of total factor productivity into innovation and catch up.

Findings: The results show that during the study period, the TFP has increased by an average rate of 3 percent. The study found that out of 100 firms, 45 firms have increased total factor productivity. Most firms are trying to catch up their peers rather than surpassing them. It is clearly supported by the analysis that out of 100 firms 82 have shown an increase in efficiency change (Catch up) while as only 8 firms have shown growth in technical change (innovative).

Improvements/Applications: Indian IT sector is required to follow new directions. In order to survive in the long run with the same zeal, the industry demands to consolidate its strengths and move up the value chain if it has to maintain its head start on the competition. Most importantly, it will have to invest substantially in research and development and create linkages to encourage career prospects for researchers in engineering. As a matter of necessity, the companies in the industry should focus on the path-breaking technology rather than following the linear process.  


Keywords


Software Industry, Total Factor Productivity, Technical Efficiency Change, Technical Change, Research and Development.

References