This paper describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model, although, as we point out, efforts to interpret this model causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Inequality and Growth: What Can the Data Say?

Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics The rapid and comprehensive tariff reductions--part of an IMF-supported adjustment program with India in 1991--allow us to establish a causal link between variations in inter-industry and inter-temporal tariffs and consistently estimated firm productivity Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1949292_code1671431.pdf?abstractid=1949292&mirid=1

Trade Liberalization and Firm Productivity: The Case of India

This paper exploits India's rapid, comprehensive, and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms.

/pdf/trade-liberalization-and-firm-productivity-the-case-of-india-1s1vzh4q1s.pdf

Environmental Degradation in France: The Effects of FDI, Financial Development, and Energy Innovations

This paper examines how prices, markups and marginal costs respond to trade liberalizaƟon. We develop a framework to esƟmate markups from producƟon data with mulƟ-product firms. This approach does not require assumpƟons on the market structure or demand curves faced by firms, nor assumpƟons on how firms allocate their inputs across products. We exploit quanƟty and price informaƟon to disentangle markups from quanƟty-based producƟvity, and then compute marginal costs by dividing observed prices by the esƟmated markups. We use India’s trade liberalizaƟon episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalizaƟon lowers factory-gate prices and that output tariff declines have the expected pro-compeƟƟve effects. However, the price declines are small relaƟve to the declines in marginal costs, which fall predominantly because of the input tariff liberalizaƟon. The reason is that firms offset their reducƟons in marginal costs by raising markups. Our results demonstrate substanƟal heterogeneity and variability in markups across firms and Ɵme and suggest that producers benefited relaƟve to consumers, at least immediately aŌer the reforms. Long-term gains to consumers may be higher to the extent that higher firm profits lead to new product introducƟons and growth. Indeed, firms with larger increases in markups had a higher propensity to introduce new products during this period.

/pdf/prices-markups-and-trade-reform-1vlg7yxzzr.pdf

Prices, Markups and Trade Reform

Using annual data for the period 1971–2011, this study explores the relationship between financial development and energy consumption for Saudi Arabia by endogenizing economic growth, capital and urbanization as additional determinants in the energy demand function. The combined cointegration test proposed by Bayer-Hanck (2013) is used to estimate the long-run and short-run relationships among the series. The robustness of cointegration results is also tested by employing Pesaran’s et al. (2001) Autoregressive Distributed Lag (ARDL) model accommodating structural break in the series. Both conventional and structural break unit root tests are applied in order to test the stationarity properties of the series. The causal relationship between the variables is further investigated by applying Innovative Accounting Approach (IAA). Both Bayer-Hanck’s combined cointegration and Pesaran’s ARDL bounds testing models confirm the presence of cointegration among the series. After confirming the existence of cointegration among the series, the overall results from the estimation of an ARDL energy demand function reveal that in the long-run, financial development adds in energy demand in Saudi Arabia. Furthermore, while economic growth is negatively related to energy consumption, urbanization and capital are the key factors leading to increased energy demand in the long-run. The findings also confirm the non-linear and inverted U-shaped relationship between financial development and energy demand for the Saudi Arabian economy. Finally, an evidence of unidirectional causality running from financial development to energy demand is found. These results urge for the attention of the policy makers in Saudi Arabia to design a comprehensive energy conservation policy to minimize the consequences of massive energy consumption on environmental quality and energy export-driven revenue by adding financial development, urbanization and capital as main explanatory determinants in the energy demand function.

/pdf/does-financial-development-intensify-energy-consumption-in-3rcz8svhmy.pdf

Does financial development intensify energy consumption in Saudi Arabia

Trade Liberalisation and Productivity Growth in Manufacturing: Evidence from Firm-Level Panel Data

This paper examines the dynamic interaction between FII flows and stock market returns in Indian stock market. Using daily data from January 2003 to February 2007, VAR framework and Granger causality test, we find the existence of bidirectional causality between FII flows and stock returns. Further analysis through impulse response function indicates that FII flows are more stock return driven. We also find support for information revelation hypothesis and momentum trading hypothesis.

Causal relationships between Foreign Institutional Investments and stock returns in India

Using firm‐level panel data we investigate whether reform of the trade and industrial policy regimes in India introduced in 1991 resulted in a reduction in market power and/or an acceleration in productivity growth, consequences that have been predicted in theory. Econometric testing of the theory for every industry group at the two‐digit level in India yielded limited evidence of acceleration in productivity growth and no evidence of a reduction in market power. This is interpreted as suggesting that in the case of Indian industry trade liberalization has not exhibited the potential often attributed to it.

M. Suresh Babu

Papers

Does financial development intensify energy consumption in Saudi Arabia

Trade Liberalisation and Productivity Growth in Manufacturing: Evidence from Firm-Level Panel Data

Causal relationships between Foreign Institutional Investments and stock returns in India

Liberalization, Market Power, and Productivity Growth in Indian Industry

Does inequality hamper long run growth? Evidence from Emerging Economies