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Assessing Factor Proportions in Tradable Sectors of the Indian Economy

Tandon, Anjali (2019): Assessing Factor Proportions in Tradable Sectors of the Indian Economy. Published in: ISID Working Paper (October 2019)

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Abstract

The basic motivation of this work is to find how the sector-wise factor proportions are placed in an open and market driven economy. Literature emphasises a greater relevance of factor proportions in resource allocations for economic activity as compared to intersectoral linkages. However, the measurement of factor requirements is, prima facie, based on direct factor proportions, and can be misleading due to the its partial nature of assessment. Working with the Semi-Input-Output Model provides an advantage to distinguish between tradable and non-tradable sectors while also including the indirect factor use. The analysis confirms an underestimation of factor proportions, if only the direct factor usage is taken into consideration. It also provides a benchmark for comparison of the sector-wise factor proportions. It is insightful to note that most tradable sectors have higher capital coefficients than the corresponding labour coefficients, underscoring stronger than expected capital requirements.

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