This study explored the effect of borrowing on the growth of manufacturing industries. For examining the growth of the industries, real output was used as the proxy. A panel data set was prepared on manufacturing industries over the period from 2001 to 2010. The focus of the study is confined to the growth of the manufacturing sector; thus, the manufacturing industries were used as the cross sections units for the panel. For the estimation of the output elasticity of capital and labor, the Cobb Douglas production function was estimated; while estimating the technical inefficiency, the stochastic frontier model was specified based on the Cobb Douglas production function. The estimation of the regression equations revealed that borrowing from banks and capital has a significant and positive effect on the output; whereas, the technical inefficiency has a negative effect on the output and decreasing returns to scale were found.

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