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No. 356

July 2009


ISSN 0019-5170


Remittances and Economic Development in Sub-Saharan Africa

Fidelis O. Ogwumike
Ebenezer A. Olubiyi

Remittances, defined as the share of foreign based earnings sent to relative(s) at home, are said to be large and stable and therefore represent additional capital inflow necessary for economic development. However, received empirical evidence show remittances do not automatically lead to development. of important is the result the World Bank study that shows that remittances do hamper economic growth because of moral hazard existing between the sender and receiver. Meanwhile, another study carried out by McLeod and Molina show that the negative effect of remittances on growth may exist in a region where 60 percent of the poor do not have access to such inflow. The question tackled in the present study was does remittances actually spur growth in Sub-Sahara African region in general and its sub-regional blocs in particular? The sub-regional blocs considered were West Africa, Middle Africa and East Africa.

We collected data for 21 countries spanning 1980 to 2004. We employed Generalized Least Square (GLS) panel data technique and our results show that remittances significantly increase economic growth (measured as nominal GDP per capita) but has no impact on economic development measured by literacy level), even though it shows a negative sign. In case of the sub-regional blocs, remittances positively and significantly affect economic growth in each of the regions, but it shows negative (but insignificant) sign for West Africa and Middle Africa.

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Financial Innovation and its Impact on Reserve Bank Policies

P. K. Mishra
B. B. Pradhan

It is a stylised fact in the fields of economic growth theory and economic history that innovation is the engine of economic growth. Like the technological innovations, innovations in the financial sector are expected to change all aspects of economic activity, bringing about a greater improvement in economic performance, Rapid financial innovation as a phenomenon in the past decades has changed the array of financial services available to customers, but at the slime time, complicated the environment in which Reserve Bank implements its policies.

This paper tries to explore the specific impact of financial innovation on the monetary transmission mechanism, and hence the capacity of Reserve Bank to stabilise the economy and promote long-term economic growth, It is an important feature of monetary policy that it is not aimed at the financial system as such, but it uses the financial system as a means of achieving its objectives.

Thus, financial innovation exerts effect on monetary policies. Financial innovation puts effect on the policies of Reserve Bank through interest rate, credit and exchange rate channels. And, the analysis drawing on recent financial crisis concludes that the impact of financial innovation on policies of Reserve Bank is only temporary.

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Imports-Growth Relationship in India: Causality Analysis

Neena Malhotra and Meenu

Imports play an important role in the growth process. Imports are the source of raw materials not available domestically, as well as of technology and capital goods for raising productive capacity of the economy. Imports also help in generating economic efficiency as well as price stability Aggregate imports of a country depend upon a large number of factors like size and growth rate of gross domestic product, relative prices of imports, foreign exchange reserves etc. At disaggregate level the various categories of imports also depend upon their domestic production. One way of looking at relationship between imports and growth is to investigate the causal relation between two.

Most of the studies conducted on causal relationships are based on aggregates (like imports and GNP, exports and GNP etc). India being a large country, the major categories of imports like Mineral imports, Machinery and Machine Tool imports, Pearls and Semi Precious Stones imports, Chemical and Allied imports, Base metal and articles imports, Textile imports and Agricultural imports are very large in themselves and hence can have causal relation with gross domestic product at factor cost (GDPFC) as well as their domestic production (DPn). In case of imports of capital goods (as measured broadly by Machinery and Machine tool imports), Gross Domestic Capital Formation (GDCF) of our country can also be an important factor.

The results strongly support the unidirectional causation from GDP to total imports, as well as in case of other major categories of imports. At disaggregate level, domestic production causes base metal imports, chemical and allied imports, machinery and machine tool imports, textile imports, and pearls, precious and semi precious imports, i.e., all the considered categories of imports are caused by their domestic production. We can conclude from here that imports of these categories are used as raw materials in India's domestic industries. In case of machinery and machine tools imports and chemical and allied imports, there is feedback causality between their domestic production and imports. In case of machinery and machine tool imports, gross domestic capital formation causes machinery imports, but there is no reverse causation. It means India's capital goods imports increase with the increase in gross domestic capital formation.

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Money and Price Relationship in the Economy
of Maldives-An Econometic Study

Shyam Charan Barma
Chandan Kumar Mukhopadhyay

MI, M2 and consumer price datasets in Maldives economy are non-stationary at level but stationary upon first differencing. Consumer price and MI money supply are 1(0) co-integrated. Similarly, consumer price and M2 money supply are 1(0) co-integrated Estimated Vector Error Correction(VEC) model indicates that short-run dynamics do not destabilize the long-run relationship among the variables concerned. There exists unidirectional Granger Causality running from MI money supply to consumer price and from M2 money supply to consumer price.

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Econometric Analysis of the Demand for Fuelwood
In Owerri North Local Government Area of Imo State, Nigeria

Ohajianya, D. 0; Emenyonu, C. A, J. I. Lemchi
Anyanwu C. F., and F. C. Anaeto

This study was designed to determine fuelwood demand, isolate the determinants of the demand for fuelwood and analyze the price, income and cross price elasticity of fuelwood demand in Owerri North LOA of Imo State. Cross sectional data were collected with structured questionnaire from 60 randomly households between January and March 2007. Data were collected on per capita demand for fuelwood, price of fuelwood, price of kerosene, price of cooking gas and per capital income, and analyzed using mean, percentage, frequency distribution and fitting the ordinary least squares (OLS) multiple regression model to the demand function. Results show that aggregate demand for fuel-wood per day was 125 kg, that own price of fuelwood, price of kerosene and per capita income are the determinants of the demand for fuelwood in the study area, and that aggregate demand for fuelwood is price inelastic. Kerosene was found to be a close substitute to fuel- wood. If appropriate policy is made concerning fuel-wood consumption and reduction in price of kerosene, households will shift their preference to kerosene consumption thereby saving the study are from deforestation and depletion of natural resources.

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Productivity Analysis in Consumer Products and Home Appliances
Industries of India

Shiv Bhushan and N.G. Pendse

Studies on total factor productivity acquire great significance in the context of growth in developing economics. The measurement of TFP is be set with source well-known conceptual and empirical problem and involves several highly restrictive assumptions, such as static competitive equilibrium and constant returns to scale. Of late years, the methodology of total factor productivity measurement has advanced remarkably by incorporating the recent advances in production and cost theory and in index number theory and practice. The overall analysis on the basis of all the three indices of total factor productivity suggest positive trend in industry group viz, Canning and preservation of fruits and vegetables; Manufacture of bakery products; Production of common salt; Manufacture of cocoa products and sugar confectionery (incl. sweetmeat); Manufacture of hydrogenated oils and vanaspati, ghee etc.; Processing and blending of tea including manufacture of instant tea; Manufacture of food products n.e.c; Weaving and finishing of cotton textiles on powerloom; Cotton spinning, weaving and processing in mills; Spinning, weaving and finishing of coir textiles; Manufacture of knitted or crocheted textile products; Making of blankets, shawls, carpets, rugs & other similar textiles products; Manufacture of textile/textile products n.e.c like linoleum, padding, wadding upholstering and filling etc.; Tanning, curing, finishing, embossing and japanning of leather; Manufacture of footwear (excl repair) except vulcanised or moulded rubber or plastic; Manufacture of perfumes, cosmetics, lotions, hair dressings, tooth pastes, soap in any form, detergents, shampoos, shaving products, washing and cleaning preparations and other toilet preparations; Manufacture of matches; Manufacture of metal cutlery, utensils and kitchenware; and Manufacture of miscellaneous products n.e.c., thus indicating presence of technological change.

However insignificant estimates were observed in case of industry groups such as Manufacture of dairy products; Coffee curing, roasting, grinding and blending etc.; Weaving and finishing of cotton khadi; Weaving and finishing of cotton textiles on hand looms; Spinning, weaving and finishing of jute and mesta textiles; Manufacture of all types of textile garments and clothing accessories n.e.c (except by purely tailoring establishments) from not self-produced material; Manufacture of wearing apparel of leather & substitutes of leather; Manufacture of consumer goods of leather and substitutes of leather other than apparel & footwear (excl. school bags and travelling accessories from water-proof textile materials); Manufacture of leather and fur products n.e.c; Manufacture of watches and clocks; and Manufacture of jewellery and related articles indicating technological stagnation.

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Micro credit in India

Kakali Majumdar

Micro Credit, fonl1ally pioneered by Mohammed Yunus, founder of Grameen Bank and celebrity patron of burgeoning micro credit movement, is now a world view with the experimentation now extended even to developed countries where the concept of micro credit may be a bit misplaced if not totally unfounded. Micro credit largely refers specifically to loans and the credit needs of clients, while microfinance covers a broader range of financial services that create a wider range of opportunities for providing tiny entrepreneur opportunities to the poorest spectrum of the society. India, being home to the largest number of poor in the world, is a fertile ground for experimenting with the micro credit scheme. Micro credit, in India formally began in 1992 with the launch of Bank-Self Help Group linkage project by NABARD. The uniqueness of this Model is that though inspired by "Grameen", has evolved and adopted a model of its own, tailored to work within the complexities of homogenous and often myriad political and social spectrum. There is no doubt Micro credit in India has made rapid strides in changing Rural scenario and ushering in a social change that otherwise would not have been possible within the strict Institutionalized fonl1al Banking system yet the scope of further improvement of this programme is almost unlimited.

The present paper attempts to study the growth prospects of Micro Crediting in India, in the backdrop of past experiences and difficulties, in implementing these programs. The present paper also tries to highlight the role played by the Self Help Groups and NGOs in making the programme implimentable, besides studying the deficiencies that come in the way of making micro credit in India an overwhelming success.

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Arima Forecasting For GNI in India by the
Box-Jenkins (BJ) Methodology

Amit Kundu

ARIMA [(1, ,5, 6, 7), I, 0] Model has been estimated as the univariate process for GNI series in India for the period 1985-2005. The model has been used for generating one period ahead forecasts for the GNI series. The forecasts are "efficient".

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A Sector-focused Approach to Achieving
Employment-intensive Growth in lndia-
An Empirical Analysis.

Abhishek Jain

The overall employment intensity of economic growth is a weighted average of the employment elasticities of various sectors. The recent studies on organized manufacturing industries show that no discernible shift has taken place in the structure of industries in terms of the share of various sectors in output. Indeed, the share of the top five labour-intensive sectors has declined between 1990-91 and 2003-04 and some labour-intensive sectors have registered negative value added growth. On the other hand, a good percentage of the relatively capital-intensive industries have registered fast growth. One positive feature is the growth of some labour-intensive sectors like textiles, garments, footwear, jewellery, etc.

The present article shows that there are sectors and sub-sectors with high employment elasticity with respect to output that could be targeted in order to achieve a more employment-intensive growth. Outside manufacturing, construction; tourism, retail and lCT are important sectors with growth and employment potential. The need is to undertake, for key sectors, detailed analysis of production and factor use, identify constraints and introduce corrective measures to ensure higher growth. Ultimately, a thrust to promote sectors and sub-sectors with high employment elasticity will pave the way for higher employment-intensive economic growth in India in the times to come.

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Cost Efficiency in Indian Commercial Banks:
A Stochastic Frontier Approach (1998-2005)

(Mrs.) G. Ramathilagam and Ms. T. Christy Chanchu

This paper empirically estimates and analyses the cost efficiency of all Indian commercial banks for the period 1998-2005, using stochastic frontier approach (SF A). The result of the study demonstrated that Indian banks are yet to become cost efficient. There is still scope for them to minimize cost to the extent of 20 percent. The most dominant factors bearing on the cost of the banks were deposits and interest cost of funds. If only banks could try to control their cost in these respects, they would be able to compete better in the emerging scenario.

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Optimal Human Allocation of Medical Care
Item with Service Level Objective in
General Hospital

Chien-chung Lee

This paper proposes a method for meeting the objective of the service level to minimize the costs of employees. The patient arrival rate, the number of employees, waiting time, and the total time spent for a patient in the general hospital are considered simultaneously in this study. In addition, the indicator used to measure the service level is relative service efficiency in this paper. This indicator doesn't concern the absolutely performance result, but concerns the relative service efficiency of a general hospital. Thus, a fairer evaluation of the service level is established. Moreover, this paper also constructs a Cost Function (CF) Model for searching the optimal number of employees allocated in each medical care item with considering the expected service level. This model is an integer-programming problem, and the two-staged heuristic method for reaching the optimal solution is provided. A numerical example is also followed.

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Securitization and Volatility of Financial Transactions

T. V. S. Ramamohan Rao

The originator passing on the risks (or sharing them) in financial transaction is the general end result of asset based securitization (ABS). It can be shown that volatility (measured as the variance in the recovery of receivables) increases in at least three contexts.

(a) The originator does not share the risk and consequently expands into high risk activities to increase his business. This depends on the efficiency of the special purpose vehicle (SPY) in collecting receivables and how consideration is defined at the time of securitization. However, there will be limits on volatility beyond which the originator does not gain.

(b) The size of anyone securitized pool may be small compared to the total business of the SPY. Portfolio choice based on the risk adjusted rate of return becomes important in such a context. In an expanding market the originator and/or the Spy may find the risk adjusted of return on securitization higher even with increasingly risky transactions. He will then expand into activities that increase the volatility of transaction.

(c) The investor, who buys the pass through certificates (PTCs) issued by the Spy, may find securitized transactions more attractive relative to conventional financial instruments either due to lower transaction costs, shorter time horizon over which they can be recovered, or higher risk adjusted rate of return. Even this has the effect of increasing volatility of financial transactions. We explore these and related issues in a simple contracting framework.

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