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No. 343

APRIL 2006


ISSN 0019-5170



Monetary Policy Targets and Bank Liquidity
Management Practices in Nigeria: An Inter- Temporal Analysis

Adolphus J. Toby

This empirical work shows that the liquidity management practices of Nigerian banks have been at variance with monetary policy targets both in times of "intense" deregulation (1991-92) and "guided" deregulation (1999-2000). The evidence confirms that a reduction in the cash reserve requirement necessitated an increase in average bank liquidity and a paradoxical decline in aggregate credit to the economy. Short-term interest rates experienced wide swings in times of "intense" deregulation with banks relying on the volatile overnight funds market to ease off temporary shortfalls in liquidity. Moreover, interest rates moderated in times of "guided" deregulation with commercial banks playing a dominant role in the Certificate of Deposit (CD) and Commercial Paper (CP) markets. This means that banks had to expand their liabilities portfolio at an extra cost of funds compensated by wider interest margins. However, there is always a need to pursue a consistent monetary policy environment to minimise the incidence of liquidity risk in the banking system.

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Stock Market as a Source of Finance :
Evidence from
Indian Private Corporate Sector

L. M. Bhole*
Jitendra Mahakud**


This paper analyses the trends in equity capital financing of Public Limited Companies (PULCos), and Foreign Companies in India during the period of 1966-67 to 2000-01, and estimates dynamic panel data models (more specifically, the Generalized Method of Moments model) by using data for 330 PULCos for the period 1984-99, for empirically identifying the determinants of equity capital finance. The period analysis has also been carried out to gauge the impact of liberalization on the determinants of equity capital finance in India. The paper finds that the stock market has not acted as an important source of finance for the private corporate sector in India during the period of 1966-2000. Further, it has been found that total long-term borrowings, size of the firm, profitability, growth rate of the firm, liquidity and cost of equity are the major determinants of the equity capital financing in India.

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Financial Sector Reforms and Volatility
in Indian Stock Market

Rijo M. John*


The Generalised Auto-regressive Conditional Heteroscedastic (GARCH) models were used to analyze if there are any changes in the pattern of returns and volatility in stock market in India before the financial and banking sector reforms in 1995-96. Using the daily returns data from National Stock Exchange, it was found that the volatility after the period 1995-96 is less compared to the previous period. The volatility in the period before the reforms was found to be higher than that of the whole period as well. It was also found that among the GARCH family of models, GARCH (1, 1) model gives the best fit according to all the model selection criteria.

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An Aggregate Import Demand Function for
Turkey: A Cointegration Analysis 

Hiiseyin Kalyoncu*


This paper estimates an aggregate import demand function for Turkey during the period 1994:1-2003:12. In our empirical analysis of the aggregate import demand function for Turkey, cointegration and error correction modelling approaches have been used. Empirical results suggest that there exists a unique long run or equilibrium relationship among real quantities of imports, relative import price and real GNP.

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The Relative Importance of Money Supply
and Bank Credit in the Transmission
Mechanism of Monetary Policy
Under Interest Rate Deregulation

Purna Chandra Padhan*


This study examines the relative importance of money supply and bank credit in the transmission mechanism of monetary policy under interest rate deregulation in India, applying vector autoregression model and Granger causality tests. Seasonally adjusted monthly data for 1975:04 to 2002: 12 on two alternative money stock and bank credit measures, viz., MI, M3 and net bank credit to government (BCG) and bank credit commercial sector (BCC), and call money rate and index of
industrial productions are used. The Granger causality tests, impulse .
response functions and variance decomposition results supports that both money supply and bank credit are equally important in the transmission mechanism of monetary policy during both the periods, i.e. pre- and post- deregulation of interest rate. An additional evidence is that interest rate channel emerges as another important channel of monetary transmission mechanism after deregulation of interest rates.

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Women in The Labour Market:
A Spatial Analysis with Reference
to Tamil Nadu Estate  

S. Sundari*

It has been widely recognised that education and employment are the two powerful tools in bringing about the empowerment of women. In this research paper, an attempt is made to study the trends and pattern of female employment, problem of gender inequity in work participation, identify the factor for inter-district variability in female labour force participation and also address the recent issues in women's employment with special reference to the State of Tamil Nadu. The major inferences drawn is that female work participation in Tamil Nadu has increased only marginally during the decades 1991-2000 ; work participation is more among rural than urban women, gender disparity in work participation is relatively higher in urban than rural areas and there is no occupational diversification among women. The concentration of women workers in the occupation of 'agricultural labour', is an indicator of women's disadvantaged position, increased economic disparity and poverty. Further, in rural Tamil Nadu, there is increase in unemployment, on one hand, and greater casualisation of labour force on the other. The study suggests that education, training, skill formation and access to resources are the vital inputs for women to face the challenges of emerging opportunities under the process of globalization and also to achieve the
goals of empowerment and equity.

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World Trade Organization
and Developing Nations 

Tadiboyina Venkateswarlu


The debate over the centralized VS market economies and their benefits to accelerate economic development has been debated without an ending since the 1990s. The published studies in the literature have shed light over the benefits of liberalized trade between trading nations as opposed to protectionism and/or controlled markets.

The paper attempts to give an overview of the historical background of WTO regarding its structure, aims and objectives; to present the concerns of developing nations towards industrialized nations in imposing uniform standards for implementation; to provide the role of STEs (State Trading Enterprises) in supply management and price setting, such as Canada, Australia and New Zealand; and to suggest alternatives and/or recommendations for improved performance of WTO to gain the confidence of developing nations in the future.

WTO is an offshoot of GATT (General Agreement on Trade and Tariffs) to redress the protectionist trade practices of countries in the post war periods of the 1920s and 1930s, especially in the United States where the average tariff on imported goods increased to 52 per cent from 38 per cent. In 1946, the International Trade Organization (ITO) has been established to limit protectionism and to treat all countries equally. An intern agreement among members has resulted in the form of GATT in 1947. The U.S. Congress has ratified GATT without extending any status to ITO. In Uruguay round trade talks, member nations have included investment, insurance, intellectual property and communications along with traded goods. The deliberations on these items have led to the creation of the WTO as an official organization in 1995 to help member nations. The membership since then has increased to 144 from 23. The decision-making, the membership, the dispute settlement and the interpretation of articles in the constitution are handled by the council of member nations through the help of the appointed 8 member body (The Appelete Body).

In spite of the benefits which may accrue to developing nations because of liberalized trade, they have not been able to develop trust in WTO which is dominated by industrial nations with double standards to protect their domestic producers and to punish developing nations. It appears from the recent estimates that tariff reduction by 40 per cent on industrialized goods and agricultural goods may benefit the global welfare around $70 billion, half of which may go to developing nations. The second estimate suggests that the fulfilment of outstanding issues of Uruguy Round Meeting resolutions may contribute to externalities worth $212-510 billion in global welfare, of which $86-122 billion goes to developing nations. However, uniform standards in the labour, the wages, the health and the environment introduced by industrialized nations will have serious negative effects on indigenous, culture oriented industries and small farms in which 70-75 per cent of the population in South Asia depend for their living.

The paper also looks at the role of state trading enterprises (STEs) who as members of WTO act as monopolists/monopsonists in controlling the supply, the price and the market share in domestic and foreign markets. Approximately, 150 STEs report to WTO, 70 per cent of them deal with agricultural goods and the rest with the service sector like investment, internet and communications. The subsidy paid to domestic producers varies in countries with STEs as opposed to the ones without STEs. The marketing practices of STEs contradict and/or violate one of the fundamental principles, namely, liberalized trade, for which WTO has been formed. Lastly, the paper suggests alternatives with recommendations to improve the confidence of developing nations towards WTO's role in global welfare.


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Cointegration Tests and Spatial Integration
of Indian Major Pepper and Cardamom
Markets with International Markets
During Pre- and Post-Liberalization Era

S.R. Rajesh* , N. Raveendaran*,
Anil Kuruvilla**, C. Sekhar*

The study examines the nature and the extent of market integration among various domestic and international markets of Pepper and Cardamom during pre- and post-liberalization period. Maximum Likelihood (ML) method of cointegration was employed to examine the nature of integration. Results revealed that the prices are non-stationary in their levels but stationary in first differences. All the price series of pepper for different markets both in domestic and international during pre-liberalization and post-liberalization periods contained a single unit root and are integrated of order one. In respect of cardamom, liberalization has not increased the strength and stability of price linkages among various markets. During post-liberalization, the number of markets that were cointegrated were higher than in the pre-liberalization period in case of pepper. The issues associated with these are also discussed.

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Demand for Public Goods:
A Comparative Static Exercise

S. S. Rath*


Optimal provision of collective goods depends on the relationship of the private goods with the collective good~ in the utility function of consumers and is determined according to the nature of resources used for its production. This paper uses a complete information non-strategic 2 x 2 model (2 individual 2 goods) to investigate the optimal provision of public goods (G) for different specifications of the utility functions. Section II introduces a utility function in which the public goods produced in this period gives utility to the individual also in the next period. Section III works with utility function U = f(x) g(G), [X is the private goods] whereas section IV works with utility function U = bl log .(x) + b2 log (G). Later in section IV subsistence level of x and G, Xo and Go respectively are introduced, such that if actual consumption of x is below xo, utility drops to minus infinity. Finally section V introduces labour as the productive input. This paper is based on the hypothesis that optimal allocation of public goods is a solution to the free-rider problem when there is perfect information.

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