Showing papers in "Indian Growth and Development Review in 2018"

Exporting and firm performance: evidence from India

Abstract: The purpose of this paper is to investigate the direction of causality between firm productivity and export status. The correlation can arise from multiple alternative causal models, and the authors study if more productive firms export, and/or if firms learn to export, and/or if firms learn by exporting.,The authors investigate these relationships, harnessing the natural experiments offered by firms which transitioned into exporting, in a dataset of Indian firms from 1989 to 2015. Each firm which made the transition is matched against a control which did not. The transitions take place across many years, thus permitting a matched event study in firm outcomes.,The authors find there is self-selection of more productive firms into exporting. Firms that make the transition into exporting become bigger, but there is little evidence of learning by exporting, of improvements in productivity right after exporting commences. However, there is evidence of learning to export, that is there is improvement in productivity of export starters in comparison to their productivity a couple of years before they begin to export.,The strength of the paper lies in an opportunity for sound measurement: we observe firms make a transition from domestic market into exporting. The transitions take place across many years, thus permitting a matched event study in firm outcomes. Using this methodology, the authors find that firms become more productive a few years before they export, that is they learn to export. They contribute to the literature by bringing evidence of “learning to export” from a developing country.

The Kyoto Protocol and CO2 emission: is India still hibernating?

Abstract: Purpose The purpose of this study is to investigate the relationship between CO2 emission and its core determinants, namely, economic growth, energy consumption and trade openness in the pre- and post-Kyoto Protocol era in the Indian economy. Design/methodology/approach The study uses the ARDL bounds test to analyze the long-run and short-run empirical relationship between the interested variables for the time period 1971-2013. A dummy variable representing the Kyoto Protocol regime has been included to examine the likely impact of international climate policies (Kyoto Protocol) in controlling and reducing CO2 emission in India. Findings The empirical results indicate the possibility of increase in CO2 emission from India even after the Kyoto Protocol regime. Evidence of inverted U-shaped relationship between CO2 emission and economic growth (EKC hypothesis) has been confirmed. However, compared to increase in CO2 emission, the magnitude of decrease due to improvement in economic growth is relatively lesser. Energy consumption and trade openness are also found to increase CO2 emission. Research limitations/implications The results indicate that there is a lack of commitment on the part of India to curtail CO2 emission, which can be disastrous for future prosperity. Financing the renewable electricity generation, R&D subsidy and tax-free renewable energy seems to be imperative to address this catastrophic problem. Originality/value This study is the first attempt to analyze the impact of international climate policy (Kyoto Protocol) on CO2 emission by incorporating a fixed dummy in the ARDL specifications.

Measuring total factor productivity change of microfinance institutions in India using Malmquist productivity index

Abstract: Microfinance institutions (MFIs) provide small loans and other financial services to the poor. These institutions are established for helping the poor to raise income levels and to reduce poverty. Recently, MFIs are required to reduce their dependence on grants and subsidies. Consequently, they face conflicting objectives of improving reach and profitability. These can be achieved by improving productivity. This paper aims to investigate productivity change in 21 major MFIs in India which are rated by Credit Rating and Information Services of India Limited in 2014.,This paper attempts to examine total factor productivity change in 21 major Indian MFIs during the period from 2014 to 2016 using Malmquist productivity index. The inputs and outputs are selected considering objectives of outreach and financial sustainability. The authors have categorized MFIs in three categories, namely, large, medium and small, depending on asset size.,It is revealed that large MFIs are able to catch up with industry best practices by improving their systems and processes, but they need to improve scale efficiency. The Reserve Bank of India has recently initiated a policy of granting banking licenses to those financial institutions which have good outreach and are financially strong. It can be used for shortlisting MFIs before granting permission to operate as banks. The method can also be used for benchmarking them for productivity. It can also be replicated in other countries.,In India, MFIs are playing important role in economic development by providing microcredit to the poor. However, very few studies have been undertaken regarding productivity of MFIs in India. The present study intends to fill this gap. It will facilitate benchmarking of MFIs as competitive and sustainable financial institutions catering to the requirements of small borrowers.

Optimizing private and public mode of operation in major ports of India for better customer service

Abstract: The Government of India announced its liberalization policy in the year 1991. Since then, the major ports in India introduced privatization in various forms into their operations. However, the share of total traffic (cargo) handled by major ports fell from 90 per cent in 1991 to around 70 per cent in 2015, losing share to minor ports. These major ports, except for the port of Kamarajar, are governed by the Major Port Trust Act, 1961. None of the Indian ports feature amongst the top 20 ports of the world. Interestingly, several ports in Asia, namely, seven ports from China, Singapore, Hong Kong and Malaysia are on that list. Several studies and reports have shown that privatization in India did not yield the desired results. Ports in India have adopted a hybrid mode of governance, aligned between a landlord port model and a service port model. This paper aims to address the question – What is the optimal way to mix privatisation and government control in the operations of major ports of India.,In this paper, the authors attempt to develop an optimization model for port planners to decide on the optimum mix of privatized and self-managed operations so as to maintain efficiency and maximize revenue.,The model tested on a major port in the country shows that the present privatization policy followed by the port needs revision. A similar plan to revise their policies can be carried out for other major ports in the country.,The model is generic and can be used by any port in the world operating under conditions similar to those in India.

Trade liberalization and gender inequality: role of social norms

Abstract: Purpose The purpose of this paper is to examine the effects of trade liberalization on gender earning differentials and female labour force participation by considering the interaction between changes in relative wages, intra-household bargaining power and social norms. Design/methodology/approach A three-sector general equilibrium model is developed where female labour supply is determined as a collective household decision and depends on male and female wages and intra-household power distribution. On the other hand, the effect of power distribution on female labour supply depends on social norms. Findings Comparative static analysis shows that a tariff cut may reduce female labour force participation and widen gender earning inequality if (i) the agricultural sector is more male labour-intensive than the informal sector, and the marginal utility of the woman from household work is higher than that of the man or (ii) the agricultural sector is more female labour-intensive than the informal sector, and the marginal utility of the woman’s household work is higher to the man than the woman. Policies to raise the empowerment of women might lead to favourable labour market outcomes for women if the marginal utility of the woman’s household work is higher to the man than the woman irrespective of the factor intensity condition. Research limitations/implications The results signify that the effect of trade liberalization hinges on both factor intensity conditions and the relative work preferences of women vis-a-vis men, which in turn is shaped by social norms. Originality/value The paper contributes to the scant theoretical literature on labour market consequences of trade liberalization by considering the gender equality implications of trade liberalization from a supply side perspective. The results of the model are used to explain the recent gendered labour market consequences in India in the aftermath of trade liberalization.

Poverty, growth, inequality: some general and India-specific considerations

Abstract: Purpose This paper aims to address the thesis that poverty is best alleviated by a policy emphasising the growth of per capita average income, a strategy that affords little room for direct pro-poor interventions or a movement towards a more equal distribution of incomes. This policy prescription is based on the empirical finding that cross-country variations in poverty are largely explained by variations in growth rates of average income. Design/methodology/approach The paper contends, as has been done in other commentaries on the subject, that inferring the dictum that “growth is [virtually the only thing] good for poverty” from cross-country evidence on poverty, growth and inequality is neither logically plausible nor normatively compelling. This is sought to be established both through conceptual reasoning and (secondary) data-based analysis. In particular, the thesis under review implicitly rejects the value of counter-factual analysis. Such a hypothetical illustrative analysis is attempted here, using evidence relating to urban poverty, growth and inequality in India. Findings The paper concludes, without undermining the salience of growth, that there is little basis for the pre-eminence accorded to it as the instrument for poverty redress. Originality/value This paper has not been published elsewhere. A collaborative paper by one of the present authors with another scholar, on a similar theme is, however, under preparation for publication.

What does the new 2011-12 IIP series tell about the Indian manufacturing sector?

Abstract: Purpose This paper aims to discuss the changes in the new 2011-12 base year series of the Index of Industrial Production (IIP) to determine whether the new series has improved the understanding of the growth in the manufacturing sector Design/methodology/approach This paper develops a simple framework to separately estimate the contribution of value- and volume-based commodities in the growth of the manufacturing index The authors present a case study by analysing the growth performance of IIP drugs and pharmaceuticals sector by comparing it with real net sales of a common sample of firms in this segment Findings The authors find that growth in value-based commodities contributes significantly in moving the index in either direction, and that high growth in value-based commodities coincides with periods of low inflation On comparability, using real net sales as an alternate indicator of industrial output for the pharmaceuticals sector, the authors find that IIP and real net sales show contrasting trends, thereby raising issues of reliability The authors also find that the IIP shows a disconnect with growth rates from Annual Survey of Industries for several industries Practical implications The divergence between two measures of industrial activity raises crucial questions on the representativeness of the IIP Originality/value The study builds a framework to separately estimate the contribution of value- and volume-based commodities in the growth of the manufacturing index

Sensitivity of global and regional poverty rates to alternative purchasing power parities

Abstract: Purpose The purpose of this study is to examine the sensitivity of regional and world poverty rates to the purchasing power parities (PPP) used in the calculations. The PPPs are required to convert the “international poverty line” typically denominated in US dollar to its local currency equivalent in the various countries. While recent studies on world poverty differ with respect to the specification of the international poverty line (IPL), they universally use the PPP available from the international comparison program (ICP). This study provides a departure and calculates PPPs using the Gini–Elteto–Koves–Szulc (GEKS) price index and country product dummy (CPD) model as alternatives to the ICP PPPs. The GEKS and CPD PPPs are compared with the ICP PPPs. The paper then compares the global and regional poverty rates based on the three sets of PPPs and presents evidence of significant revision to the poverty rates if we depart from the use of the ICP PPPs. The study tests for the presence of serial correlation between price movements in different countries and investigates its impact on the PPPs. The methodological contribution of this paper is to establish the close nexus between price indices and poverty rates via the PPPs used in obtaining the local currency unit (LCU) denominated IPL. Design/methodology/approach The PPP calculations in this paper relate to the ICP round, 2011. Along with the ICP PPPs from published reports (with India as the numeraire country), we report the following indices, namely, the GEKS, weighted CPD and its two spatially correlated generalisations. The ICP PPPs are used as benchmark. The ICP group in the World Bank made the price and expenditure information for 2011 available. Corresponding poverty rates are calculated at the country, regional and global levels. Findings The empirical evidence points to the fact that while at the country level the alternative calculations have high impact on the implied poverty rates, at the regional and global level the rates are reasonably quite robust. Research limitations/implications Three points are worth noting, namely, as opposed to the PPP for “Individual consumption expenditure by households” (ICEH), which is the PPP used for international poverty monitoring by the World Bank and others, we have used the ICP PPPs for “Actual individual consumption” (AIC); although ICP uses the GEKS procedure above the BH level, we independently calculated these PPPs using the price information provided, and the base country has been moved from the USA to India. Practical implications One can come up with independently estimated PPPs that do not require the elaborate and expensive procedure set up by the ICP and can arrive at robust poverty rates at the regional and global level. Social implications The change in base has been made as India shares many of the features of a developing country including high poverty rates, but at the same time provides a market and an economy size that places it in the top tier of nations. In addition, poverty comparisons amongst developing countries can be made using these PPPs directly, without reference to the USA. The poverty calculations are based on the PovcalNet program. Originality/value There is no clear answer to the question “how robust are the global poverty numbers to departures from the ICP PPPs?” in the literature nor is there any evidence on the robustness of the ICP PPPs themselves to changes in the ICP methodology. Given that the ICP uses the Gini–Elteto–Koves–Szulc (GEKS) multilateral price index in aggregation of ICP PPP basic heading data, in an attempt to partially answer this question this study examines the sensitivity of measures of relative prices (and poverty) to using CPD (and various spatial versions) and GEKS methods, using price data provided by the World Bank. It also verifies how these PPPs track the published 2011 ICP PPPs, which are used as benchmark.

Investment and wage gap in India: a general equilibrium analysis

Abstract: This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India.,The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporates endogenous demand.,With homothetic preferences, a small initial wage premium and elastic relative demand, investment in the formal sector is likely to close the wage gap, but the gap persists with non-homothetic preferences. However, investment in the informal sector is unlikely to close the wage gap with either type of preferences.,Though labour market distortions in developing economies leading to a formal-informal wage gap are well-documented in the development literature, little attention has been given to the question of whether such a gap would close over time.

Institutional regimes and profitability transitions: the case of Indian manufacturing firms

Abstract: Literature, spanning industrial organization and strategic management disciplines, uses variance decomposition to understand the relative importance of firm, industry and business group effects in shaping profitability variations. Some literature analyzes firm profitability under transition to liberalization. Previous research has taken a static before-and-after view on institutional change. This paper aims to focus on the dynamic process of liberalization in India, analyzing how different institutional regime changes alter firm behavior leading to changes in profitability patterns.,Based on a panel data set of several thousand Indian firms, spanning the 26-year period between 1980-1981 and 2005-2006, the authors determine the relative importance of firm, industry and business group effects in explaining manufacturing firms’ profitability variances across different institutional phases. The authors evaluate three propositions that help assess transition dynamics between phases. They determine the quantum of catch-up or falling behind by firms.,Different industries emerge as profitability leaders, as the economy progresses through different liberalization phases. Business groups that have been more effective in resource appropriation, rent-seeking, politician management and non-market activities in a controlled regime are replaced as profit leaders by those that, in a free-market economy, can be capable of intra-business resource allocation tasks and leveraging corporate capabilities.,The approach demonstrates how to analyze the underlying detailed structure of firm-level data, and performance outcomes, to derive nuanced interpretation of factors giving rise to the effects that explain profitability variances, and how to assess the way these effects behave over time. The dynamic evidence-based approach highlights what factors matter, where, when and why, in influencing profitability variances, which are a key dimension of industrial and economic performance.

Capital endowment and race to the bottom in a federation

Abstract: This paper aims to analyse the phenomenon of race to the bottom in a federation and provides answer to the question why developing countries are more prone to race to the bottom competition than developed countries.,The paper considers a two-stage game where, in the first stage, two regional governments in a federation choose tax rate on mobile capital employed in its own region by maximising its regional per capita income, and in the second stage, a representative firm chooses capital and labour employment in the two regions by maximising total profit. As capital is mobile across regions, tax policy chosen by any region affects other region. From strategic interaction between the regional governments, the authors derive Nash equilibrium tax rates. Comparing Nash equilibrium with Pareto optimum outcome, race to the bottom is characterised.,The paper finds that federations with poorer endowment of capital are more prone to the race to the bottom outcome. The result is robust to the introduction of different types of asymmetries between the regions and a centrally executed revenue equalisation scheme. Whilst it hints at the fact that capital accumulation can naturally solve the race to the bottom problem, it identifies the presence of an equalisation scheme and equity concern at the regions to weaken the impact of capital accumulation in achieving such an outcome.,The role of capital endowment in the race to the bottom literature in fiscal federalism has previously been ignored. This has serious implications for developing countries like China and India where states compete with each other for attracting private capital in their own jurisdictions.

Is awareness of credit sources prerequisite for their use? A study of rural Assam

Abstract: The purpose of this paper is to analyze the determinants of awareness and use of credit sources. The paper attempts to answer the critical question: is awareness of credit sources prerequisite for their use?,This study is conducted in Assam, India, and uses a two-stage econometric model to reduce possible selection bias.,This study argues that awareness of credit sources may be a necessary but not sufficient prerequisite for use. It is found that, in general, formal, semiformal and informal sources attract different classes of the population with respect to economic and social indicators.,The study recommends expanding the scope of semiformal and informal credit sources in rural areas of Assam only for income generating activities with proper market linkages. The possible limitation of the study can be due to exclusion of the role of traditional community-based organizations in rural Assam while analyzing the awareness and use of credit sources.,The study contributes to the literature by assessing the probable differences among formal, semiformal and informal credit sources with respect to their determinants of awareness and use.

External terms-of-trade and labour market imperfections in developing countries: Theory and evidence

Abstract: The paper addresses the question of whether developing countries possess any built-in mechanism that can cope with external terms-of-trade (TOT) shocks. Using a two-sector, full-employment general equilibrium model with endogenous labor market distortion theoretically it shows that such countries possess an inherent shock-absorbing mechanism that stems from their peculiar institutional characteristics and can lessen the gravity of detrimental welfare consequence of exogenous TOT movements. This result has been found to be empirically valid based on a panel dataset of 13 countries from 2000-2012. Our analyses lead to recommendation of an important policy that should be adhered to preserve this in-built system.

Inequality in the labor market: lower perceived returns among marginalized youths and girls

Abstract: Purpose This paper examines perceived labor market earnings among adolescents and their parents by gender and caste. Previous research has established that lower subjective expectations of labor market returns among parents affect educational investment. Likewise, subjective expectations of adolescents about labor market returns are likely to affect their commitment to their education. In the labor market, gender and caste biases manifest itself in terms of lower wages for women and persons from marginalized communities. The authors ask if perceived earnings among adolescents and their parents vary by caste and gender over and above their intrinsic ability. Design/methodology/approach The authors use a unique dataset on adolescents that has been recently collected (2013-2015) by ASER Centre, the research and assessment wing of Pratham Education Foundation for the analysis. To answer the research question posed in the paper, they use standard OLS and quantile regression techniques. Findings Results confirm that girls have lower expected earnings than boys. Caste differences appear more rigid in Bihar. Research limitations/implications The authors recognize that the results presented do not take into consideration the issue of selection bias. Hence, they are applicable not to the average adolescents in the study districts, but only to those who reported expected earnings. That said, they do not think that this technical limitation dilutes the broad policy conclusions emerging from the study. Originality/value The paper uses cognition as a measure of an adolescent’s intrinsic ability. Therein lays the uniqueness of the paper. It brings into the discussion on expected earnings test scores as a measure of an adolescent’s cognitive ability. It is also unique in that it focuses on adolescents in the age group of 11-16 years who are likely to join the labor force in few years. Previous discussion of subjective expectations in India did not include any measure to capture cognitive ability and did not focus exclusively on adolescents.