Saturday, September 19, 2009
Thursday, July 23, 2009
Business Cycles in India
This paper finds that for the period 1992-2008, business cycles in India show a strong co-movement with those in the industrial economies.
Friday, February 13, 2009
Political Economy of Bank Lending
Of late there has been a growing interest in political economy of government spending in India. So far the focus has been on spending at the state or central level as well as center-state fiscal transfers. This paper by Shawn Cole however, looks at the effect of elections on bank lending in India.
It integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture. Studying banks in India, Cole finds that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. Cole shows that capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output.
Cole Shawn (2009), Fixing Market Failures or Fixing Elections? Agricultural Credit in India, American Economic Journal: Applied Economics, 1:1, 219-250.
It integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture. Studying banks in India, Cole finds that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. Cole shows that capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output.
Cole Shawn (2009), Fixing Market Failures or Fixing Elections? Agricultural Credit in India, American Economic Journal: Applied Economics, 1:1, 219-250.
Wednesday, December 17, 2008
A Tale of Two States
Abstract
In this paper Lahiri and Yi study the decline of West Bengal relative to Maharashtra, historically two of the most important states of India. In 1960, West Bengal’s per capita income exceeded that of Maharashtra, the third richest state at the time. By 1993, it had fallen to just 69 percent of Maharashtra’s per capita income. They employ a "wedge" methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the output and factor market sources of the divergent economic performances.
Their diagnostic analysis reveals that a large part of West Bengal’s development woes can be attributed to: (a) low sectoral productivity, especially in manufacturing and services; and (b) sectoral misallocation in labor markets between the manufacturing sector and the other sectors of the economy. They also present evidence on the labor market, the manufacturing sector, and public infrastructure that suggest a systematic worsening of the business environment in West Bengal during this period.
Lahiri A and K Yi (2008), " A Tale of Two States: Maharashtra and West Bengal", Federal Reserve Bank of Philadelphia, April.
In this paper Lahiri and Yi study the decline of West Bengal relative to Maharashtra, historically two of the most important states of India. In 1960, West Bengal’s per capita income exceeded that of Maharashtra, the third richest state at the time. By 1993, it had fallen to just 69 percent of Maharashtra’s per capita income. They employ a "wedge" methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the output and factor market sources of the divergent economic performances.
Their diagnostic analysis reveals that a large part of West Bengal’s development woes can be attributed to: (a) low sectoral productivity, especially in manufacturing and services; and (b) sectoral misallocation in labor markets between the manufacturing sector and the other sectors of the economy. They also present evidence on the labor market, the manufacturing sector, and public infrastructure that suggest a systematic worsening of the business environment in West Bengal during this period.
Lahiri A and K Yi (2008), " A Tale of Two States: Maharashtra and West Bengal", Federal Reserve Bank of Philadelphia, April.
Monday, November 24, 2008
Arthakranti
Simplitstic ideas abound and there is no reason why economics should be an exception. Arthakranti (economic revolution) would defintely count as one of such ideas. Here is why I think so.
Thursday, November 20, 2008
Education and Growth
Peter Lindert argues that there is a relationship between democracy and economic growth. However, very few studies confirm this link empirically. One of the reasons why this is the case is that they do not specify the political process in enough details. The nature of policies that will be chosen and implemented in equilibrium will depend on whether voters have 'voice' or not. If voters have voice then government will spend more on public goods that benefit masses rather than elites. Does having a democracy or extensive franchise ensure that voters will have voice? Not necessarily.
Let us measure the elitist bias in government spending policies. If voters have voice then the government will spend more schools than on higher education and we will find the proportion of spending on schools in total spending higher relative to a situation where voters do not have voice. Thus, higher voice means more spending on primary education and hence lower elitist bias. How do various democracies fare on this count? All the economically successful democracies spend significant portion of their education expenditure on primary education than higher education. This signifies lower elitist bias and hence better human capital and hence growth. What is the catch? Yes, you got it right-its India.
India is the biggest but also the poorest democracy in the world. It turns out that among million reasons why India is poor, the elitist bias in its spending policies infact might be a significant one. We have an impressive list of higher education institutions but our primary schools remain of abysmal quality and quantity. As a result we have some 200 million people with access to somewhat decent higher education but remaining 800 million or so have to survive on schools with one class room and absent teachers!
Lindert argues that even though India is a full fledged democracy by all standards, its voters do not have voice or voice is distributed more unequally than votes. So while other economically successful democracies got it right in terms of primary education, India lags behind because of a massive illiterate and undereducated human pool. So whats the moral of the story? Massively expand and improve schooling in India.
This is important because all other policies of ensuring equal access do not work or work only in the limited sense if basic education is not right. For example in a recent article in EPW, Chakravarty and Somananthan found that SC/ST students earn significantly lower wages in IIMA's placements. However, the difference between the wages of SC/ST and open category candidates vanishes once controlled for the GPA. Thus, the wage differentials account for differences in human capital endowments of the SC/ST versus the open category students. These inequalitties in endowments can be taken care of only if all the castes have access to quality education and a way to do that is to spend more on schools than on universities and colleges.
Chakravarty S and S Somanathan (2008), Discrimination in an Elite Labor Market? Job Placements at IIM-Ahmedabad, Economic and Political Weekly, November 1.
Lindert P (2003), Voice and Growth: Was Churchill Right?, The Journal of Economic History, 63, 2, 315-350.
Let us measure the elitist bias in government spending policies. If voters have voice then the government will spend more schools than on higher education and we will find the proportion of spending on schools in total spending higher relative to a situation where voters do not have voice. Thus, higher voice means more spending on primary education and hence lower elitist bias. How do various democracies fare on this count? All the economically successful democracies spend significant portion of their education expenditure on primary education than higher education. This signifies lower elitist bias and hence better human capital and hence growth. What is the catch? Yes, you got it right-its India.
India is the biggest but also the poorest democracy in the world. It turns out that among million reasons why India is poor, the elitist bias in its spending policies infact might be a significant one. We have an impressive list of higher education institutions but our primary schools remain of abysmal quality and quantity. As a result we have some 200 million people with access to somewhat decent higher education but remaining 800 million or so have to survive on schools with one class room and absent teachers!
Lindert argues that even though India is a full fledged democracy by all standards, its voters do not have voice or voice is distributed more unequally than votes. So while other economically successful democracies got it right in terms of primary education, India lags behind because of a massive illiterate and undereducated human pool. So whats the moral of the story? Massively expand and improve schooling in India.
This is important because all other policies of ensuring equal access do not work or work only in the limited sense if basic education is not right. For example in a recent article in EPW, Chakravarty and Somananthan found that SC/ST students earn significantly lower wages in IIMA's placements. However, the difference between the wages of SC/ST and open category candidates vanishes once controlled for the GPA. Thus, the wage differentials account for differences in human capital endowments of the SC/ST versus the open category students. These inequalitties in endowments can be taken care of only if all the castes have access to quality education and a way to do that is to spend more on schools than on universities and colleges.
Chakravarty S and S Somanathan (2008), Discrimination in an Elite Labor Market? Job Placements at IIM-Ahmedabad, Economic and Political Weekly, November 1.
Lindert P (2003), Voice and Growth: Was Churchill Right?, The Journal of Economic History, 63, 2, 315-350.
Wednesday, August 6, 2008
Caste, Gender and School Choice
What is the relation between caste, gender and school choice in a globalized economy? This paper is an interesting effort to understand and answer this question. It addresses the question of how traditional institutions interact with the forces of globalization to shape the economic mobility and welfare of particular groups of individuals in the new economy. The authors explore the role of the caste system—in shaping career choices by gender in Bombay using new survey data on school enrollment and income over the past 20 years.
They find that male working-class—lower-caste—networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to nontraditional white-collar occupations rose substantially in the 1990s, suggesting the possibility of a dynamic inefficiency. In contrast, lower-caste girls, who historically had low labor market participation rates and so did not benefit from the network, are taking full advantage of the opportunities that became available in the new economy by switching rapidly to English schools.
Munshi K & Rosenzweig M (2006), Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy, American Economic Review, 96(4):1225-1252.
They find that male working-class—lower-caste—networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to nontraditional white-collar occupations rose substantially in the 1990s, suggesting the possibility of a dynamic inefficiency. In contrast, lower-caste girls, who historically had low labor market participation rates and so did not benefit from the network, are taking full advantage of the opportunities that became available in the new economy by switching rapidly to English schools.
Munshi K & Rosenzweig M (2006), Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy, American Economic Review, 96(4):1225-1252.
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