Aggregate productivity, economic fluctuations, and export orientation: Evidence from India.

• Cyclicality in aggregate productivity predicts the efficiency of resources reallocation. • Aggregate productivity growth originates from within-plants, allocative efficiency gain, and due to entry and exit. • We exploit the Great Recession to analyse the validity of the 'Cleansing' or 'Scarring' effect of recession and 'Schumpeterian Darwinian Selection' for Indian manufacturing. • The contributions to aggregate productivity growth from within-plant and net-entry effects are procyclical. • Plants in export-oriented industries are crucial in explaining the pro-cyclicality. • The exporting sectors during 2008-09 shifted resources from more productive to less productive plants. • The relatively productive exporters exited the markets following the global crisis, scarring the economy. • The positive contribution from the net-entry exit effect of plants during the economic downturn validates the 'Schumpeterian approach of Darwinian Selection'. Understanding the cyclicality in aggregate productivity helps answer whether the economy allocates resources efficiently or not. The paper analyses the sources of aggregate productivity growth, such as direct efficiency gain within-plants, allocative efficiency gain, and gains due to entry and exit during economic fluctuations. In particular, we exploit the economic shock of the Great Recession to analyse the validity of the 'Cleansing' or 'Scarring' effect of recession and 'Schumpeterian Darwinian Selection' for Indian manufacturing. The rise and fall of within-plant and net-entry effects during the economic fluctuations explains the pro-cyclicality of productivity growth. Plants in export-oriented industries are crucial in explaining the pro-cyclicality. Negative external shock to exporting sectors during 2008–09 shifted resources from more productive to less productive plants. The relatively productive exporters exited the markets following the global crisis, scarring the economy. Nonetheless, the positive effect from the net-entry exit of plants during the economic downturn makes the 'Schumpeterian approach of Darwinian Selection' valid. [ABSTRACT FROM AUTHOR]