No. 334

JANUARY 2004

Vol LXXXIV

ISSN 0019-5170

 

The Indian Journal of
Economics
 

University of Allahabad

Contents


 

  The Choice of Foreign Product Strategy Between Two Countries under Exchange Rate Uncertainty

CHIN- TSAI UN AND CHENG-RU WU
 

This study considers the effects of real exchange rate on strategies that govern the locations of production of by firms that are entering/exiting foreign markets in one country. This study extends the Cobb-Douglas batch process production model of Lin and Wu (2002), which considers two locations of production in two countries, respectively to establish a decision valuation model for selecting the three optimal locations for one in each country. This paper applies the real options approach (ROA) to evaluate the behavior of the trans1erable 'location in the two countries. The export-oriented manufacturer is risk averse and has rational expectations. As the entry cost-declines, the export - oriented manufacturer's entry trigger for the Cobb-Douglas production function increases for transferring from a domestic and to a foreign location. Additionally, the manufacturer's exit trigger for Cobb-Douglas production function increases for transferring from a foreign and to a domestic location. Moreover, the exit cost resembles the entry cost.

Go To TopTop


Relationship Between Corporate Growth and Profitability

ABHISKEK SINHA, PREMRAJ PILLAI, RANJAN VARGHESE AND SANGEET A D. MISRA
 

Previous empirical and theoretical research by Marris suggests that under many circumstances firm growth may fall short or generating any sustainable competitive advantage and increasing profitability and that high growth firms, in particular, may incur some inherent "growth" risks. including business failure. Growth of a firm is measured in terms or growth in assets and revenues from main business line. Profitability of a firm is measured in the form of Return on Assets W1U Profit margin of a firm. This study extends the work of Gartner & Markman from Fortune 500 companies in US to top 30 Indian companies across six sectors in empirically testing the relationship between the growth and profitability of a firm. The findings and interpretations are based on the statistical analysis carried out on the growth and profitability parameters mentioned earlier. This paper also offers for why firm growth and profitability has a different correlation across industries. This paper also suggests that various means employed for firm growth may no! 111cessarily translate into increasing profitability and associated value creation.

Go To TopTop


Rural-Urban Migration: A Search for Economic Determinants

HADI GHAFFARI AND S. P. SINGH
 

The contributing factors for rural-urban migration may either be "push" or "pull", with ,the former guided by force of internal circum- stances and the latter by lure. of external attractions or incentives. The present paper attempts to identify the major push and pull factors responsible for rural out-migration, based on the data collected from 1991 Census for 50 districts of Uttar Pradesh. The OLS regression model has been applied to examine the impact of various determinants on rural-urban migration. It has been found that development of educational facilities as well as irrigation facilities in rural areas and acceleration of industrialization process in these areas are significant variables in abating the flow of rural exodus.

Go To TopTop


Detection of .Inter-State Kuznets Cycle through Neo-Classical and eo-Keynesian Paradigms: Indian Experience

ACHAL KUMAR GAUR
 

Kuzents hypothesis (1955, 1963) has established a link between inequality and average well-being at the level of economy. The hypothesis maintains that given a two-sector economy with not much inequality within sectors but different sectoral mean incomes, a continuous transfer of population from one sector to another will initially raise the aggregate inequality and it will decrease at later stage.
Inter-state Kuznets hypothesis has been tested in the present paper for the twenty states of the Indian federation for which per capita state domestic (at current prices) data has been taken for the period 1980-81 to 2001-02. The result reveal existence of Kuznets cycle for per capita state domestic product (SOP) in the Indian states.
Regression results based on OLS technique suggest that inter- state inequality in per capita revenue of states (pre-devolution period), per capita revenue of the state (post-development period) and per capita expenditure of states were primarily responsible for growing inter-state income inequality in India during 1980-81 to 1999-2000. The study may help in identifying the economically backward states [or transferring the funds to them from central divisible pool of resources in order to accelerate the principle of 'horizontal equity' and 'balanced regional development' in a federation.

Go To TopTop


The Impact of Interest Rates on Savings Mobilization in Nigeria (]970-2000): A Co-Integration Approach

M. O. VICTOR OUSEAND R. O. ABIOLA
 

The role of interest rates in savings mobilization at best has remained controversial. While economic theory would tend to suggest a positive correlation between savings and interest rates, the result of most empirical works particularly for developing countries do not at best conform with the expectations. It is, therefore, the objective of this study, considering the structure of interest rate, the pre-SAP interest rate management regime, to examine the effect of interest rates on savings mobilization in Nigeria. Data on interest rates in Nigeria from 1970 -2000 were collected and a co-integration method of analysis was used.
It was found that the specific variables that influence aggregate savings ratio in Nigeria includes lagged savings -income ratio, current ratio of foreign savings to GDP, Lag foreign savings -GDP ratio and a dummy variable capturing financial liberalization. The empirical result showed the existence of a long run equilibrium relationship between these variables and aggregate savings ratio in Nigeria.

Go To TopTop


 The Relative Effectiveness of Fiscal and Monetary Policy in the Indian Context (1970-71 to 1999-2000)

G. RAMATHILAGAMAND Ms. S. AMUDHA
 

This study on the relative effectiveness of fiscal and monetary policy using the Indian macro level data for the period 1970-7 I to 1999-2000 in the modified St. Louis equation and Granger causality frameworks had confirmed that monetary policy as measured by Ml is relatively more potent than fiscal policy. It underlines the need for limiting Government expenditure that results in crowding-out effect. It recommends that the Government should focus on monetary policy targets and strive for central bank independence to ensure stability in the policy environment. It concludes that fiscal policy is a necessary, but not a sufficient condition for stability in the economy.

Go To TopTop


Mixture Distribution Models of Indian Stock Returns: An Empirical Comparison

D. S. BROCA
 

A significant portion of financial theory assumes that stock price relatives are independent and identically distributed according to a normal (Gaussian) distribution. However, this assumption has long been disputed; the distribution of security returns has fatter tails and some positive skewness compared to the normal curve. In an attempt to capture these features, two heavy-tailed mixture densities are proposed for Indian stock returns; the Student t and the double normal. Model calibration over a fourteen year period, 1985-1998, revealed that the Student t distribution provides a superior fit on the basis of the Schwarz criterion. This raises concerns about the applicability of mainstream financial models, based on the Gaussian postulate, to Indian markets.

Go To TopTop


 Primary Co-operative Banks: A Paradox of Loss WEN RONG Liu: A Note on investigating Causal Link Between the Hidden Economy and Real GDP in Taiwan, 1962-2001 Contents: Indian Association of Social Science Institutions (lASSI), Vol. 21, No.1, July-September 2002

KUMUD SHARMA
 

A strange problem is faced by the Primary Co-operative Agricultural and Rural Development Banks (PCARDBs). They borrow from the upper tier, the State Co-operative Agricultural and Rural Development Bank (SCARDB) at a lower rate of interest and lend it to the farmers and when it is repaid they pay it back to the SCARDB. Superficially seen, out of this simple operation, PCARDBs should earn profit, because the regular and the penal interests charged by the PCARDBs to the farmers are higher than the corresponding rates charged by the SCARDB to the PCARDBs. However, the PCARDBs suffer loss, when some of the borrowers repay regularly and some repay it at a later date. The present paper throws light on the causes, the solutions to and the gravity of the said problem.

Go To TopTop


 A Note on investigating Causal Link Between the Hidden Economy and Real GDP in Taiwan, 1962-2001 Contents: Indian Association of Social Science Institutions (lASSI), Vol. 21, No.1, July-September 2002

WEN RONG Liu
 

In this study, we first re-estimate the size of the hidden economy based on Tanzi's (1983) currency-ratio approach for the first time in the Taiwan context covering such a long time period (1962-200 I); second, we investigate time series properties of the estimated real hidden economy and real GDP; and third, we test the hypothesis of a long-run relationship and causal link between the estimated hidden economy and real. GDP over this sample period. The test result indicates that these two variables are co-integrated with one vector indicating a long-run equilibrium relationship exists between-these two variables. Granger- causality test result based on vector error-correction model (VECM) suggests a bi-directional causality (feedback) between these two variables. This result poses a dilemma for Taiwan policy makers who wish to stimulate economic growth and also minimize the size of the "tax gap" in Taiwan over this sample period.

Go To TopTop

Copyright 2017, The Indian Journal of Economics
University of Allahabad