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No. 344 |
JULY 2006 |
Vol LXXXVI |
ISSN 0019-5170 |
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Contents
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Optimal Bank Cash Reserve,
Disintermediation, and Strategic
Competition
Shih-Heng Pao*, Li-Hung Wu**
and
Jyh-Horng Lin***
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This paper explores the
determinants of bank cash reserves based
on a simple firm-theoretical model with
conjectural variations and
disintermediation. We find that the bank's
optimal cash reserve is positively related
to its deposits when the disintermediation
in the imperfectly competitive deposit
market is relatively active. A decrease in
the regulatory required reserve rate is
more likely to have a negative effect on
the bank's deposit amount. The bank may
not choose the cost-minimizing level of
cash reserve to maximize its expected
profit. Our findings provide alternative
explanations for the evidence concerning
bank cash reserve behaviour, not only from
the viewpoint of sources-and-uses but also
from the viewpoint of strategic
competition.
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Potential Impact of a
Freer Investment Regime
in India: Some Empirical Results
Debashis Chakraborty
and
Arup Guha **
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The efficiency of imposing controls on
capital flows in a country is a
long-debated question, which has not been
resolved even after the East Asian Crisis
(1997). It is argued that the liberal
capital control regime boosts the
confidence of the international community
on the domestic economy and becomes
Instrumental for ensuring capital inflows.
On the contrary, It Is also widely held
that controls on capital flows insure a
developing country from a potential
currency crisis. In the recent period, a
number of economists have argued that
developing countries should link capital
mobility with labour mobility a
multilateral negotiations, by which they
stand to gain considerably. While India
has liberalized capital inflow
substantially in the recent period, it is
following no time-bound schedule to
implement Capital account convertibility (CAC).
Looking into the interrelation between
current and capital account in India, the
paper attempts to explore whether India
has reached a stage to go for CAC and use it as a policy tool at multilateral
negotiations.
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Probability of Detection Based
Determination of Deterrent Scales
of Penalty for Concealment of Income
S. N. Chaturvedi*
and
A. K. Srivastava**
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The
underlying idea of the paper is based on
the proposition that the probability of
detection as perceived by the tax payers
is the prime determinant of deterrent
penalties for concealment of income. The
level of effective deterrent is reached
when the prescribed penalty equals the
reciprocal of the probability of detection
as reduced by one and further multiplied
by 100. At the deterrent level of penalty
the probability of detection is equal to
the proportion which the amount of tax
sought to be evaded bears to the
post-detection tax liability. Consequently
the taxpayer may be induced to evade so
long as the probability of being detected
in the event of concealment of the income
is less than the proportion under
reference. The existing scales of penalty
for concealment of income in India ranging
between 100 percent and 300 percent of the
tax sought to be evaded are quite short of
the required level of deterrence. It is a
matter of common knowledge that the
chances of detection in India are nowhere
close to the one out of four attempts of
evasion necessary for ensuring the
adequate degree of deterrence in the
prescribed maximum limit of penalties at
300 percent, leave alone the 50 percent
probability of detection required for
making the minimum level of penalty at 100
per cent fully deterrent. It is,
therefore, suggested that the Government
of India should increase the penalties for
concealment of income upto the level which
corresponds to the probability of
detection widely perceived by the tax
payers. Besides, the sustainability of
penalty orders at the stage of appeals
also needs to be improved through more
adept monitoring of such cases before the
appellate authorities.
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Liberalization : Efficiency, Productivity
and
Production Function Behaviour in Indian
Manufacturing Sector
Rakesh Kumar*
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This study has been carried out for the
period of 1980-2000, a decade before the
new policy reforms introduced and a
decade after. To verify the hypothesis
of considerable improvement in
efficiency, productivity, and change in
production function behaviour, various
statistical and econometric techniques
have been used. Manufacturing sector,
during the liberalized period had
experienced deceleration in its total
factor productivity growth, but
explanation for this deceleration does
lie in liberalization measuring
variables rather somewhere else. Even,
manufacturing sector did not experience
much change in efficiency. For the
manufacturing sector as a whole,
translog production technology has been
rejected. Cobb-Douglas production
function has been accepted. except for
neutral technology assumption, by
applying likelihood ratio test.
Production function behaviour did not
witness much change even after
introduction of binary variable for post-reform period.
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Public Expenditure and Economic Growth
in Africa
Omo Aregbeyen*
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This
paper examines the growth effects of
government expenditures for a panel of 40
African countries from 1970-2000. An
African countries specific study is meant
to correct the lapses and gap in the
existing literature and provide a better
understanding of the process by which
fiscal policy and particularly public
expenditure policies can be used to shape
the prospects of economic growth in the
continent. The approach to the empirical
analysis mirrored closely the standard
analytical procedure as applied in some
previous studies. The procedure involves
identifying a number of variables that
determine economic growth and classifying
the variables into distinct sets
(conditioning variables, variables
capturing monetary & trade policies and
market distortions, and fiscal variables)
which are then built into an econometric
model/regression equation to explain
growth. The choice of estimation technique
was guided by theory and practice.
Major findings of the study show that (i)
productive expenditures (capital and
public investment expenditures) with
significant positive impact on growth
commanded less proportion of the
government total expenditure relative to
the unproductive expenditures (current and
government consumption expenditures) with
strong negative impacts; (ii) the growth
impact elasticity of capital expenditure
increased while that of public investment
expenditure reduced following the
incorporation of the government budget
constraint into the analysis; (iii) high
population growth rate has significant
growth reducing impact; (iv) initial human
capital has engendered growth decline
rather than been a spur to growth; and (v)
surprisingly, despite the high profile
governments budgets deficits the
I contributions to economic growth
performance in the countries is very
negligible. The study concludes that there
is need to refocus government
expenditures, curtail deficits financing,
control Population growth and ensure
greater utilization of available human
capital. Recommendations are made in these
areas accordingly. |
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Economics and Input Use Productivity of
Paddy Crop in Different Agro-Climatic
Zones of Punjab
N. S. Dhaliwal, R. S.
Bawa.
and
D. K. Grover*
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The study brought out that the gross
returns as well as returns over total
costs excluding land in Zone III was more
as compared to other zones i.e. zone I and
II. The study also reveals that the gross
returns as well as returns over total
costs excluding land in paddy varied
directly with farm size in the overall
study. The human labour was found to
significant on small farms in overall
study. The weedicide, Phosphatic
fertilizer and machine labour was found to
be significant on medium farms in overall
study.
The marginal value productivity analysis
brought out the need to increase the
expenditure on seed, weedicides and plant
protection measures in paddy cultivation
on all categories of farm farms in overall
study. The co-efficient of Phosphatic
fertilizer and human Labour found to be
negative on small farm which indicates
that the expenditure on these variables
should be reduced. The farm size group
analysis shows that the overall realized
potential yield varies directly with the
farm size. The highest economic losses due
to non- adoption of recommended technology
was observed to be observed on small farm
of Zone I (Sub-Montane zone). |
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Public Debt in India : Need to Separate
Debt
from Monetary Management
Charan Singh*
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In
India, traditionally, a large component of
domestic government debt was incurred at
low rates of interest, which was
statutorily prescribed for subscription by
the institutional investors. A substantial
amount of domestic debt was also monetised.
In the last decade, due to financial
sector reforms undertaken since 1991, the
money and government securities markets
have developed with the offering of
market-related rates of interest on
government securities, introduction of new
instruments, setting up of trading
institutions, and improved regulatory and
technological developments. The interest
rates in the financial markets are
converging and the markets are becoming
integrated. The debt management functions
and practices have also developed
substantially since 1991. In view of the
developments in the markets and the
commitment on the part of the central
government to contain the fiscal deficit,
it would be prudent to consider now the
separation of monetary and debt
management. The separation would provide the central bank with necessary
independence in monetary management and an
environment to pursue an inflation target,
if assigned by the government. The
separation of debt management would
provide focus to the task of
asset-liability management of government
liabilities, undertake risk analysis and
also help to priorities government
expenditure through higher awareness of
interest costs.
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The Pula-Dollar Exchange Rate and the
Purchasing Power Parity in Botswana
M. Thomas Paul*
and
G. R. Motlaleng**
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For the small open economy of Botswana the
PPP theory is validated in both the
absolute and relative version for the
Pula-Dollar exchange rate during the
sample period 1992 third quarter to 2002
fourth quarter. The Pula-Dollar exchange
rate is determined by the long-term trends
in Botswana's CPI the USA's CPl. The
influence of the USA CPI is considerable.
In the long-run there is no trade off
between export competitiveness through
devaluation and inflation. But as the
speed of adjustment in the short-term
towards long-term is slow; there is some
flexibility for the exchange rate policy.
The monetary policy can be used in the
short-run to counter the inflation. As the
real exchange rate is found to be
stationary and follows the PPP theory,
there is no real appreciation of the Pula,
contradicting the portfolio balance theory
which advocates that for a trade account
surplus economy like Botswana the real
exchange rate will appreciates through the
limited demand for foreign assets.
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Role of the Social Capital in Economic
Development : A Case of (the East
European)
Georgia
Anmony Lopez
and
Kishore G. Kulkarni
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The traditional
measures of economic development do not
see the importance of social capital. For
example GDP measures only the market value
of goods and services produced in an
economy. This paper defines the salient
features of social capital and how it is
an integral part of a broader measure of
economic development. By discussing the
case of East European Georgia, the paper
makes it clear that social capital
production and its preservation are
pre-conditions for economic growth. The
effective governmental policies therefore
have to pay attention to the social
capital stock of the economy. |
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