Showing papers by "Indira Gandhi Institute of Development Research published in 2005"

Ownership Concentration and Firm Value: A Study from the Indian Corporate Sector

Abstract: This paper contributes to understanding corporate governance issues in emerging economies by examining how blockholders influence firm value. Using a much disaggregated and uniform database from the Indian corporate sector for the year 2001, we examine the interaction between ownership structure and firm value in the following ways. Unlike most existing research, which studies the aggregate level of ownership, we include a wider set of mechanisms, such as identity and ownership concentration of outside blockholders controlling at least 5 percent of total equity of the firm. We analyze the role played by these shareholders with substantial voting power in situations when equity holding is less compared to the more concentrated holdings of promoters. We also attempt to see if these investors coordinate among themselves to constrain insiders from expropriating corporate resources. We find a significant curvilinear relationship between firm value and the fraction of voting rights owned by insiders. The curve ...

Tourist Arrivals in India: How Important are Domestic Disorders?:

Abstract: The Indian tourism industry has flourished in the past few years, significantly contributing to the nation's gross domestic product, foreign exchange earnings and employment. India, with its rich natural beauty, is unquestionably a destination that should promote tourism. Over the past few years the Indian government has taken various measures to do this, but the tourism potential of the country has still not been maximized. This paper presents an empirical analysis of the determinants of international tourist arrivals in India using annual data from 1966 to 2000. The results show that sociopolitical factors – communalism, terrorism and tensions with Pakistan – constitute serious threats to the tourism industry, limiting the gains that could otherwise have been realized.

Modified landfill design for sustainable waste management

Abstract: Waste management, being one of the most important aspects of urban development, is gaining importance among developing nations. Landfills, which were initiated for hazardous waste management and subsequently transformed into sanitary landfills, have been the most widely adapted practice for municipal solid waste management worldwide. However, the conventional design of landfills not only fails to fulfil the needs of waste management but also fails to target optimal resource recovery and energy generation. In the present study, modified design was proposed for partially engineered landfill system based on theoretical considerations. Its potential for energy generation and resource utilisation was analysed with a case study of Mumbai municipal solid waste. It was found that the system with modified design could yield 0.157 million tons of landfill gas (0.145 million tons of coal equivalent) out of one year of solid waste. Further, this could recover resource valued at US$2.49 million per year.

Identifying long run supply curve of India

Abstract: Identifications of a vertical then a horizontal supply curve are successively imposed on Indian time series inflation and industrial output growth data in a two-equation Structural Vector Autoregression (SVAR) model. The results provide an indirect test of the identifications. A high elasticity of long run supply cannot be ruled out, because supply shocks have a large impact on inflation and demand has a large and persistent effect on output levels. But supply is subject to frequent shocks. Estimated structural shocks capture historical recessions and turning points well. Pro-cyclical policy induced demand shocks aggravated negative supply shocks or failed to take full advantage of positive supply side developments.

The political determinants of central governments' economic policies in India: an empirical investigation

Abstract: Using annual data from India, we investigate whether central governments' economic policies are affected by two political considerations—the proximity of an election to the national legislative assembly, and the nature of the central government (single-party versus coalition). We find that economic policies are responsive to election timing. On the other hand, economic policies are largely insensitive to government type. Copyright © 2005 John Wiley & Sons, Ltd.

Social Group Disparities and Poverty in India

Abstract: This paper seeks to provide a profile of social group disparities and poverty in India, where social groups are classified as scheduled caste, scheduled tribe and other social groups, and examine the factors underlying differences in levels of living between these groups and for each group separately. The paper argues that social group disparities in levels of living are the result of historically rooted ‘social disadvantages’ for scheduled castes and scheduled tribes, by way of social exclusion and physical exclusion respectively, which continue to operate in contemporary Indian society.

Corporate Social Responsibility as a Signaling Device for FDI

Abstract: A rise in CSR (corporate social responsibility) has accompanied the nineties rise in FDI (foreign direct investment) to developing countries. CSR may be serving a signaling function when the entering firm is of unknown type. Although countries are now competing keenly to attract foreign firms, even so excessive tax or excess transfers by firms can still cause a Prisoner's Dilemma structure to the payoffs resulting in an inefficient Nash equilibrium. But CSR allows the accommodating firm to reveal its type, making cooperation the equilibrium outcome. The game differs from standard models since signaling changes the payoffs. A unique separating equilibrium exists where only the accommodating firms signal. But under certain parameter values a pooling equilibrium, where all firms signal, becomes possible. A number of results are derived including the size of CSR expenditure required as a fraction of profits. An example demonstrates their relevance in practical situations.

Tradeoffs, Delegation, and Fiscal-Monetary Coordination in a Developing Economy

Abstract: Strategic interaction between fiscal and monetary authorities and economic agents, can lead to the creation of more populism than is socially optimal. The tradeoffs through which this occurs, important for a populous democracy with a large number of poor, is that between populism and growth. This has not received much analytical attention. We derive this tradeoff from microfoundations (i) show that a Nash equilibrium will occur with a level of populism higher than the optimal; fiscal and monetary interaction will lead to output below feasible levels, (ii) specify the conditions on which the results depend, (iv) discuss stabilisation possibilities, and (v) show that optimal delegation to a pro-growth monetary authority and a conservative fiscal authority would lower populism and inflation, while keeping growth at sustainable levels. Last, the model is used to interpret Indian macroeconomic performance.

Secluded and Proximate Illiteracy: Comparing Situations

Abstract: Triplot is used to portray the three-dimensional concepts - literate, proximate illiterate and secluded illiterate. Pictographic portrayal complemented with a method proposed to calculate distance between situations enhances comparison. Illustration with Indian data explains change over time, rural-urban divide, and social gap.

Identifying long run supply curve of India

Abstract: Identifications of a vertical then a horizontal supply curve are successively imposed on Indian time series inflation and industrial output growth data in a two-equation Structural Vector Autoregression (SVAR) model. The results provide an indirect test of the identifications. A high elasticity of long run supply cannot be ruled out, because supply shocks have a large impact on inflation and demand has a large and persistent effect on output levels. But supply is subject to frequent shocks. Estimated structural shocks capture historical recessions and turning points well. Pro-cyclical policy induced demand shocks aggravated negative supply shocks or failed to take full advantage of positive supply side developments.

Impact of Mining on Agricultural Productivity

Abstract: Development activities in developed as well as developing countries have significant impacts at regional, state and national level. Most research on this kind of impact has traditionally focused on the broad macro economic level. The micro impacts generally at community level are largely neglected. However, most of the times these micro impacts are in form of externalities: a cause of market failure. It is a third party (or spill-over) effect arising from the production and/or consumption for goods and services for which no appropriate compensation is paid. In this paper we have attempted to analyze the agricultural productivity (paddy) in a coal mining region. Our study concentrated on the Ib Valley coal field of Orissa. Our sample consists of five villages situated near the coal mines (we call them as mining villages) and 2 villages, which are away from the coal mines (we call them as controlled villages). We use survey data of 132 plots owned by the farmers in the sample villages. We use the method of Fisher and Tornqvist indices for the present analysis, which show a negative impact on TFP due to mining activities. In terms of partial productivity measure (yield) mining villages also lagged behind. Further, as a robustness check, our regression results show a strong (significant) negative impact of mining on the TFP. Apart from this, we observe a shift in livelihood from agriculture to mining related work. This social change is an indicator of rural development in Ib Valley coal field area despite of reduction in agricultural productivity. Such rural development in terms of increased earning through mining activities in the study area has always a trade-off with reduction in agricultural productivity.

Willingness to Contribute to Public Projects - Evidence from India

Abstract: Public projects in water and sanitation sector in India are partially funded by government with users also contributing cash and labor. We estimate a multinomial logit model to analyze the intended form of contribution by households to a public project, using NSSO, India dataset, covering 76,000 rural and 30,000 urban households. After controlling for existing access to water and sanitation, we find that primary occupation of the household, ownership of assets explain the form of contribution. Worsening of the state of environment, participation in existing programs increases likelihood of contribution. Minority groups' access to CPR affects their decision to contribute.

New Technology and Labour Markets: Entrants, Outsourcing, and Matching

Abstract: The impact of new technology (ICT) on labour markets and welfare is analyzed in a model of matching. First, ICT lowers cost and speed of market access, thus reducing frictions in matching a searching worker to an opportunity. It raises output and lowers the cost of entry for a new firm. The rise in scale of aggregate employment raises productivity. Second, since the net effect of ICT raises the probability of a successful search by workers relative to a successful search by firms, workers share of the match surplus rises. Third, it induces more learning and innovation. Fourth, ICTs allows hitherto excluded segments to access new networks. This reduces the ability of members of an existing network to extract the entire surplus from a new entrant. Finally, it encourages cumulative improvements in technology and skills. More labour-using technological progress is induced. Multiple equilibria are possible, however, due to endogenous choice of training and technology. Therefore investment in training and technology may be at less than socially optimal levels. Policy implications follow.

Risk and Asian Exchange Rate Regimes

Abstract: A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths.

Debt and corporate governance in emerging economies: Evidence from India

Abstract: We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. First, we examine the extent to which debt acts as a disciplining device in those corporations where potential for over investment is present. We undertake a comparative evaluation of group-affiliated and non-affiliated companies to see if the governance role of debt is sensitive to ownership and control structures. Second, we examine the role of institutional change in strengthening the disciplining effect or mitigating the expropriating effect of debt. In doing so, we estimate, simultaneously, the relation between Tobin's Q and leverage using a large cross-section of listed manufacturing firms in India for three years, 1996, 2000, and 2003. Our analyses indicate that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions become more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. However, the disciplining effect of debt is found to persist even after controlling for such expropriation possibilities. In general, our results highlight the role of ownership structures and institutions in debt governance.

Is Devaluation Working? Evidence from India in Phase of Economic Liberalization

Abstract: Using the data from a developing country like India, we offer an empirical analysis to examine the relationship between devaluation of the Rupee and the real trade balance with her major trading partners since the liberalization process that began in July 1991. Exploiting the recent advances in panel-data time-series econometrics, we document that devaluation may not be effective in improving trade balance in the long run. Success may follow only if the policymakers view devaluation as a short run tool to improve the trade balance. Nominal devaluation is unable to alter real exchange rates substantially and hence, the inflationary impact of devaluation is large in India.

Choice of Union-firm Bargaining Agenda and Social Welfare

Abstract: This paper shows that with a strong labour union, bargaining over piece rate generates higher social welfare than bargaining over fixed wage. Moreover, this social welfare exceeds the social welfare under efficient bargaining level, if the union is very strong.

Risk and Asian exchange rate regimes

Abstract: A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths.

Efficiency and Productivity in Indian Agriculture: A Stochastic Frontier Approach

Abstract: This paper addresses the issues of technical efficiency, total factor productivity and its convergence for cereal crop production in Indian agriculture using district level data over twenty-five years from thirteen major states. We estimate a stochastic frontier model to analyze technical efficiency after controlling for the district specific and climatic impact in the production of cereal crops. Our result documents that infrastructural (physical as well as social) development can raise efficiency in cereal production. The policy of licence raj (1:4 policy) introduced in the banking secor has reduced efficiency. The estimated average efficiency scores for the Indian states show the varying nature of the relative performance of the states. The result from the calculated Malmquist index of total factor productivity (TFP) provides the evidence that efficiency change results in fluctuation of TFP change, although the share of technical change in substantial. The tests for conditional as well as unconditional convergence show that productivity in Indian districts tend to converge in case of wheat, rice, bajra and jowar; but not in case of maize and aggregate crop. cereal crops.

Wage Bargaining and Managerial Incentives

Abstract: If managers bargain with workers over wage before choosing output in a Cournot duopoly, owners face two conflicting interests in designing managerial incentives: one for profit orientation to reduce wage, and the other for sales orientation to gain in output competition. The net effect depends on the workers' bargaining power.

Multiple Board Appointments and Firm Performance in Emerging Economies : Evidence from India

Abstract: The relation between multiple directorships, busy directors and firm performance has been researched predominantly in the context of developed economies, notably the US. This paper extends the existing literature on multiple directorships in two ways; first, by providing additional evidence on its effect on firm performance, but with respect to an emerging economy, India, and secondly, by suggesting an alternative measure of directorial "busyness" that is more general in its applicability compared to those that have been applied in the existing literature. Using a sample of 500 large firms from the Indian corporate sector for the year 2002-03, the paper finds multiple directorships by independent directors to correlate positively with firm value thereby supporting the "quality hypothesis" that busy directors are likely to be better directors, a result that is different from the existing evidence on busy directors. Multiple directorships by insider directors are, however, negatively related to firm performance. Estimation of group and non-group companies separately reveals that the quality effect of independent directors persists for the former but disappears for the latter. In general, the results suggest that the relation between "busy" directors and firm performance may depend on the institutional context and on the type of director

Puzzles in Indian performance: deficits without disasters

Abstract: The paper explores puzzles in Indian growth performance such as the prolonged period of below potential growth in the late nineties. Uneven investment was a major explanation. Risk aversion and adverse expectations prevented investment from rising. Since sufficient domestic and foreign savings were available to compensate for government borrowing, the high fiscal deficit did not crowd out private investment or raise risk and interest rates. A sign of the absence of excess demand was that the fiscal deficit did not lead to a current account deficit. The problem was that, partly because of structural rigidities, monetary-fiscal policy was unable to create the conditions to absorb the foreign savings made available. High volatility in nominal interest and exchange rates raised risk and amplified exogenous shocks. The second factor raising uncertainty was that exposing manufacture to international competition was delayed too long. The smooth fall in Indian nominal interest rates after 2001, and rise in infrastructure spending, succeeded in stimulating higher industrial growth by 2003, and lowering fiscal deficits. Macropolicies can stimulate growth, make it easier to undertake deep reform, and the latter can reinforce growth, allowing it to reach potential.

Regional variation and cereal production in India

Abstract: This paper analyzes the agricultural scenario in India by estimating a system of production functions for five major cereal crops (such as wheat, rice, maize, bajra and jowar), using a Translog specification instead of the more commonly used Cobb-Douglas (CD) specification. Our estimation methodology employs a Seemingly Unrelated Regressions in a panel data set up, which allows for cross equation correlation. We use district level data for 13 major states from 1966-1967 to 1994-1995. We examine the inter-regional heterogeneity using four kinds of dummy variables, viz. District dummy, state dummy, production function dummy and agro-ecological dummy. The result indicates presence of non-linear effects of various inputs on the yields. Our results show the significance of regional differences in terms of production system and agro-ecological climates.

Asian Reserves and the Dollar: Is Gradual Adjustment Possible?

Abstract: Large dollar reserves in Asian EMEs accompany large US fiscal and current account deficits. Analysis of strategic sales by Asian EMEs suggests that an attack on the dollar is not certain but is possible. A unique equilibrium where Asian EMEs sell their reserves does not exist but there are multiple Nash equilibria. Therefore action, which includes adjustment, is required to coordinate to the better equilibrium. There is evidence that more flexibility in Asian exchange rates will reduce risk for Asian EMEs, but the flexibility will have to be limited, and it depends on more flexibility in the renminbi. Moreover, limits to adjustment in wages put limits on realignments between US and Asian exchange rates. Therefore while a gradual adjustment strategy is feasible it will require both expenditure switching and expenditure reduction, with the latter moderated by the maintenance of robust global growth.

An Empirical Analysis Of Industrial Disputes: Evidence From Indian States

Abstract: This paper investigates the determinants of industrial disputes using data for fourteen major states of India over fifteen years from 1981 to 1996. We document that other than purely economic factors (e.g. wages, provident fund and other benefits, and factory size); socio-economic, institutional, and political factors have significant impact on industrial disputes. This supports the political economic view of the trade union behavior. We also provide the evidence that liberalization of Indian economy has enhanced industrial peace. Region specific factors as well as the ideology and characteristics of political parties in power of the state governments influence industrial disputes. Fixed capital per employee and overall growth rate of per capita state domestic products has negligible impact on industrial disputes.

Collateralized Lending by Indian Banks: Some Explanations and Policy Implications

Abstract: This paper draws a parallel between the extent of unsecured lending that a bank does and the screening effort extended by the bank. Since unsecured lending requires screening on the part of the bank, higher the percentage of unsecured loans in total loans, higher is likely to be the screening effort while processing loan applications. Using panel data relating to banks in India, we find that on an average a higher extent of screening effort or unsecured loans is likely to be provided by banks that are large, have low level of non-performing assets, and are in the private sector. Further, persistence in the extent of unsecured lending seems to suggest that any change in unsecured lending/ screening effort is likely to be rather slow.

Gender Gap in School Completion Rates: Evidence from Rural India

Abstract: Using the Uttar Pradesh-Bihar Living-Standard Measurement Survey (1997) this paper examines the factors that have created a wedge in the grade completion levels of the male and the female children. Our study reveals that in the context of educational outcomes, the birth order of the child as measured by the presence of older siblings is not as important as the age of the child itself. The sex bias is more severe for older children. The household religion and caste continue to exert a strong influence on the demand for schooling even after controlling for income and the education of the parents. The schooling of the parents affects the male and female samples differently in the two states: the number of grades completed by the male child is not always sensitive to maternal education whereas mother's education always matters for the female sample. Our decomposition results suggest that an improvement in the mean characteristic levels of the female sample particularly household atmosphere and development of the village can act as key factors in reducing the gender gap in grade attainment.

Risk and Asian Exchange Rate Regimes

Abstract: A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths.