A production function approach with Indian JUGAAD perspective for Eastern World Countries

Abstract

This research introduces a novel production function integrating the Indian Jugaad philosophy, emphasizing cost-effectiveness and adaptability in resource- constrained environments. Traditional production functions, such as Cobb-Douglas and CES, assume capital abundance and technological uniformity, making them less applicable in developing economies where capital constraints and technological iner- tia prevail. This study develops a nested production function incorporating capital intensity, labor intensity, and capital-labor interaction as a composite input. The theoretical foundation is reinforced by linking Jugaad to Schumpeterian innovation, institutional economics, and adaptive efficiency. A dynamic transition equation is introduced, demonstrating how firms either persist with Jugaad-based strategies or transition to capital-intensive production over time. Industry-wide equilibrium properties and spillover effects are analyzed and empirically estimated using firm- level data. Empirical validation using India’s Annual Survey of Industries (ASI) across five industrial sectors demonstrates superior performance over Cobb-Douglas and CES models. Robustness checks, including cross-validation, AIC/BIC criteria, Hansen J-tests, Stock-Yogo weak-instrument tests, overidentification tests, and sen- sitivity analysis, confirm the model’s predictive power. The findings provide action- able insights for policymakers aiming to optimize industrial efficiency in emerging economies.

Keywords. Jugaad innovation; Production function; Resource-constrained economies; Capital–labor interaction; Industrial efficiency.

JEL. C23; D24; O14; O31; O33.