No. 382

JANUARY 2016

Vol. XCVI

ISSN0019-5170

 

The Indian Journal of
Economics
 

University of Allahabad

Contents


 
 

Technical Efficiency of Domestic and
Foreign firms in Indian Manufacturing:
A firm level Analysis



Pritish Kumar Sahu*

 

The present paper analyse the technical efficiency of foreign and domestic firms of Indian manufacturing during the period 1999-00 to 2009-10 by employing the stochastic frontier analysis of Cobb-Douglas type. The finding indicates the higher mean technical efficiency of the foreign firms in the entire manufacturing over its domestic counterparts. However, the analysis at the sectoral level shows varying results indicating that majority of the sectors with increased capital use shows higher efficiency of the foreign firms. In contrary, majority of the sectors with low capital use have shown higher efficiency for the domestic firms.

  • *Knowledge Management and Economics Unit, Faculty of Business, Multimedia, University, Malaysia.

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Dynamics of Government Budget
Constraint in a Keynesian
Closed Economy Model


Surajit Bhattacharyya*

 

In a closed economy fixed-price 1s-lm model, we introduce a government budget constraint we show that the (static) keynesian autonomous multiplier in case of tax financed government budget is greater than that without the government budget secondly, the dynamics of government budget is analyzed when wealth effects are included. We demonstrate that the fiscal multiplier depends inversely only on marginal tax rate and is considerably larger than the government expenditure multiplier derived within a typical is-lm framework where government budget deficits or surpluses are not accounted for. That is, nothing matters but the fiscal parameters; monetary policy cannot permanently affect income. Finally, along with the wealth effects we also consider interest payments on government bonds and show that the net impact of wealth and interest rate effects on output will be greater under bond financing of budget deficit than under money financing of government debt.

  • *Associate Professor of Economics, Department of Humanities & Social Sciences, Indian Institute of Technology Bombay, Mumbai 400076, Maharashtra.
    E-mail: surajitb@iitb.ac.in

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Basel-defence against Financial Crisis:
Narrating some Short-comings and
Reality Constraints


Nitai C. Nag**

 

Financial crisis is a kind of recession caused by lack of necessary liquidity in financial institutions. BASEL III is a set of regulatory reforms of bank management, finalized in turn by Governors of central banks of major countries of the world and the Basel based Bank for international Settlement (BIS), MEANT for facing the challenge of financial crisis. It is noteworthy that other versions of Basel reform measures, namely, Basel I, Basel Hand Basel 2.5 preceded Basel III. They turned out to be but inadequate relative to the job assigned to them.

Basel III came into being as the world was witnessing helplessness of Basel IIin the face of the recent US financial crisis. The present paper seeks to make comments as to how Basel III too would fare in the face of the seemingly too formidable nature of the problem it vows to defuse.

Our analysis induces us to affirm that the Basel III conditions are too complex and costly to implement on the one hand and gives most of the implementers no guarantee, on the other, as to being protected from troubles of financial crisis or off shoots thereof. We apprehend that the Basel III measures, while extremely complex and rigorous in kind, is not as promising as regards achieving the envisioned goal, particularly, due to the obtaining reality of the field where they are supposed to "play". We are also inclined to share with the views expressed elsewhere that while the recent financial crisis of the US as well as Europe could have most likely been averted by appropriately implementing regulatory rules that had already been in place, there will be almost no benefits accruing to the world community corresponding to the remarkably high additional complexities and costs of the latest Set of conditions.

  • **Paper presented at the CGEI International Conference, held at the University of Allahabad on December 11-14-2014.
    Professor of Economics, University of Chittagong, Chittagong, and Dhaka School of Economics, 4/c Eskaton Garden Road, Dhaka, Bangladesh. E-mail: ncnagcu@yahoo.com

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Is the Global Financial Crisis in India
led by External Sector?:
An Empirical Analysis


Pradeep Kumar Singh*
and
Karimullah**  



The study is an attempt to examine the impact of global economic crisis in India and also to analyse whether it is driven by the external sector. Since last two decades, India is one of the emerging economies which are getting more integrated with the world economies. The unfolded global financial crisis has come in various forms and represented many challenges as well as opportunities in India. The Indian economy has shown considerable resilience to the global economic crisis by maintaining one of the highest growth rates in the world. Due to globalization, the Indian economy cannot be insulated from the present financial crisis. The connectivity of all the global financial markets impacted not only us markets but European, UK and Asian financial markets also. The Indian economy too had felt the impact of the crisis but not to that extent.

The present study has two set of analysis. One is to examine the impact of global economic crisis on external sector (proxied by the variables total exports, FDI, and foreign exchange reserves) and other set is seeking long-run relationship of external sector with Indian economic growth. Monthly as well quarterly time series data have been used for the time period of 2006 to 2015. The ADF unit root test has been carried out to test the stationarity of these variables as first step. Secondly, GARCH Model has been used to see the impact of global economic crisis on external sector growth. To find out the long-run relationship between the variables, Co-integration test has been carried out through Johansen and Juselius method. The finding suggests that the external sector growth has been significantly affected by global economic crisis and there is long-run relationship between external sector growth and overall economic growth in India. Thus it is concluded on the basis of analyses that global financial crisis in India is driven by external sector and latter affected overall growth of Indian economy.

  • *Assist. Prof., Dept. of Economics, University of Allahabad, Allahabad, 211002 E-mail: pradeeppbpo1990@gmail.com
  • **Assist. Prof., Dept. of Economics, University of Allahabad, Allahabad, 211002 E-mail: karim93@gmail.com

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Is it Merely Sufficient to Ascertain the
Causality Direction from Trade
to Economic Growth?
A Case Study of South Korea


Ruchi Gupta*
 


On using South Korea as a sample case, die study shows that it is necessary to identify the exact channels through which trade causes economic growth besides determining the causality direction between trade and growth, to derive concrete policy conclusions, besides determining the causality direction between trade and growth. Three possible channels have been investigated, viz. R&D spillovers from trade, externalities generated by the export sector and a relatively higher productivity of the export sector. It is then found that in South Korea the most important sources of causation from trade to growth have been R&D spillovers and the externalities generated by the export sector, while a relatively higher productivity of the export sector is not supported. Also, an exclusive reliance on any specific measure of trade and economic growth can yield unreliable conclusions.

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Income and Livelihood Issues of
Peasants: Evidence from Bihar
 

Ghanshyam Kumar Pandey*
 


Agriculture is the prime source of wealth in Bihar and is the key to the overall development of the state economy. The present study is based mainly on primary data collected from the four districts of Bihar covering all the agro-climatic condition. The data has been collected from the 40 villages of the state and interviewed 528 farming households from Sheohar, Purnia, Lakhisarai and Bhojpur districts of the state. The study revealed that the FBI [Farm Business Income) is the major source of income of the farming community. Agriculture is dominating in the total income especially for the small formers in the state. On an average per capita income of the farming community has been found to be Rs. 8,117.57 annually for the agriculture year 2010-11. The per capita income of large farmers is found to be more than 5, about 4, about 2.5 and near about 2 times of the income of landless, marginal, small and medium farm-size categories respectively. The distribution of income, shows that there is the U-shape distribution prevailing among the different farm-size categories with Gini's coefficient 0.49.

An inverse relationship between the farm-size and value of productivity has also been found in the state. It was concluded while small land holders were superior in terms of production performance; they are eventually weak in terms of generating sufficient income for their livelihood. Finally study suggest that there is need to bring agriculture as it is the mainstream of state with non-agricultural sector in the rural areas to imbedded in the local levels of living, resources and institution to meet the challenge of the state, especially after bifurcation in 2000.

  • *Senior Research Analyst at Institute of Economic Growth, University Enclave, North Campus, University of Delhi.
    E-mail: ghanshyampndy@yahoo.com
    Note: This paper is the part of research paper presentation in the national Seminar at NIRD Hyderabad during 4-6 november 2012; data is taken from the author's Ph.D. work. Author is thankful to the anonymous for their comments and Suggestion from seminar.

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Environmental Kuznets Curve:
Revisiting the Unsettled Debate  


Saba Ismail*
and
Shahid Ahmed*
 


This paper has made an attempt to test the Environmental Kuznets Curve (EKC) hypothesis using the Environmental Performance Index (EPI). The EPI is a method of quantifying and numerically marking the environmental performance of state policies incorporating various environmental indicators on ecosystem vitality. EPI assesses environmental quality better than separate environmental indicators, which are usually used to test the EKC hypothesis. In this study, EKC hypothesis has been tested using cross-section data for the year 2010 and 2014. The results reject the hypothesis of inverted U shape of EKC and validate cubic or N shape of EKC. As this study based on EPI not on ENVIRONMENT degradation index, hence N shape of EKC is equivalent to inverted N-shape of EPC in this paper.

It implies an increase in GDP per capita degrade the environment at initial stage, after attaining critical level of per capita, environment improves but after certain point again environment degrades with rise in GDP per capita. The study also reveals positive impacts of the human development on the environmental performance while gender inequalities seem to have negative impacts on the environmental performance.

  • *Assistant Professor, Department of Economics, Jamia Millia Islamia (Central University), Jamia Nagar, New Delhi-110025 (India) E-mail:sismail@jmi.ac.in
  • **Professor & Head, Department of Economics, Jamia Millia Islamia (Central University), Jamia Nagar, New Delhi-110025 (India) E-mail: sahmed@jmi.ac.in

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Housing Price Indices in India  


Charan Singh*
and
Shahid Ahmed*
 


The housing activity in the country, high already, is expected to further accelerate in the next few years, mainly because the government has already announced that it is committed to provide a house for all by 2022. The increased activity will impact the housing markets as a change in the house price affects the households' perceived lifetime wealth and hence influences the spending and borrowing decisions of households. Further, house price gains increase housing collateral and hence housing credits. The potential two-way link between bank lending and house prices give rise to mutually reinforcing cycles in credit and real estate markets. The increasing dominance of the sector necessitated setting up of a mechanism which could track the movement of prices in die residential housing segment Therefore, it becomes necessary to prepare an accurate measure of Aggregate house price, despite limited availability of data, in order to understand the behavior of housing markets and their influence on the economy. To understand about house prices, it is important to understand about housing indices. In India, NHB and RBI construct and release an index each, RESIDEX and HPI, respectively. In case of both the indices there are a number of problems.

  • *RBI CHAIR Professor, Economics & Social Science, Indian Institute of Management, Bangalore, Bannerghatta Road, Bangalore - 5600 76 E-mail: charansingh@iimb.ernet.in

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Technical Efficiency of Electronics
Hardware Manufacturing
Firms in India  


Dipayan Datta Chaudhuri*  



In this paper, we have used two-step approach in order to analyse the efficiency of firms in the electronics hardware sector for the years 2002-2003 to 2009-2010. In the first step, the Data Envelopment Analysis (DEA) technique has been used to estimate the efficiency of firms in the context of implementing Information Technology Agreement (ITA) of WTO in March, 2005. In the second step, the study has identified the determinants of technical efficiency of firms in this sector. The results of a panel data estimation technique show that the implementation of ITA does not have any favourable impact on technical efficiency of firms. The technical efficiency level is higher for firms which are vertically integrated and imported technologies from abroad.

  • *Professor, Indian Institute of Management Indore, Prabandh- Shikhar, Rau- Pithampur Road,Iindore-453556
    E-mail: dipayan@iimidr.ac.in

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Copyright 2016, The Indian Journal of Economics
University of Allahabad