Productivity In Aviation Industry

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I. Introduction Abramovitz (1956) defined productivity as the output per unit of representative units of resources and can be measured as a ratio of outputs to inputs. In simple terms, productivity is the ratio of the change in output to the change in inputs used in the production process. Productivity measures how well the quantities of inputs transform into outputs. The productivity increases with the variety of input changes such as, in the case of airlines, more aircrafts or larger and faster aircrafts. The Indian Aviation Industry since deregulation had went through a substantial changes starting from 1991. The dynamic atmosphere stimulated by the augmented competition from new firms called for greater competition or forced the existing…show more content…
If productivity of a firm increases, it produces more output with the same or even less quantity of inputs, the gap between total revenue and total cost increases leading to greater profits. Kaci (2009) argued that increase in productivity leads to low fares, high profits, increase in dividends for investors, high wages and high tax revenue for the government. Since the Indian aviation firms are generally in losses, as conceived, exploring the changes in the productivity of the firms would be intrusting. The goal of the chapter is to calculate the Total Factor Productivity (TFP) of the Indian Aviation Industry at the firm and industry level over the period of 1999 to 2014. There is no recent study on the productivity of the aviation industry. The study of Hashim (2004) used translog function and data from 1964 to 1999 and concluded a negative growth rate of productivity. In spite of the poor performance of the industry, there is no recent study with the new improved methodologies to calculate the productivity of the Indian Airline firms. This chapter is making an attempt to calculate it to identify what to do to improve the performance of the industry. Earlier studies of the productivity of the aviation industry dates back to the study of Caves, Christensen and Thretheway (1983) focussed on the effect of deregulation on the productivity…show more content…
The labour coefficient in all the three models is significant at 1 per cent level. The capital coefficient in OLS is biased downwards because the selection for survival is important in the aviation industry which has been emphasised by Olley and Pakes (1996). The coefficient of capital can be biased upwards if capital usage is contemporaneously or serially correlated with the productivity shocks. Levinsohn and Petrin (2003) pointed out that if capital is positively correlated with labour but is uncorrelated with the productivity shocks or this correlation is weaker than the correlation between variable inputs and productivity, then the OLS estimates on capital is likely to be biased downwards. My findings are like that there is low or no correlation between capital and productivity and the selection bias dominates the simultaneity bias. In comparison to the OLS and LP, the labour and capital coefficients in FE are much lower. This is in line with the studies that FE estimates usually disagree markedly with other estimators and is further evidence that the assumption of a time-invariant, firm FE is quite

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