Wednesday, October 20, 2010

Marx vs. Hicks: Technical change in India

“We use the real wage–profit rate schedule to examine the direction of technical change in India’s organized manufacturing sector during 1980–2007. We find that technical change was Marx biased (i.e., declining capital productivity with increasing labor productivity) through the 1980s and 1990s; and Hicks neutral (increasing both capital and labor productivity) post-2000. The historical experience suggests that Hicks-neutral technical change may only be a passing phase before we see a return to the long-term trend of Marx-biased technical change. We also find that the real profit rate has increased from about 30 percent to a very high 45 percent, that the real wage rate increased marginally, and that the share of capital in value added doubled. Overall, technical change in India’s organized manufacturing sector during 1980–2007 favored capital.”

More in this paper. Does this mean India will have increasing labor productivity and decreasing capital productivity in the long run? If so then, India might have low growth rate as in the “Marx biased” period. Now, what’s up with the growth projections that India will be the third largest economy by the next three decades?