What Explains India's Real Appreciation?
AbstractWe examine the evolution of nontradable and tradable prices in the Indian economy over 1980-2002 and find widening differentials: the real exchange rate has been appreciating. This might seem unsurprising, since India''s rapid per capita income growth suggests Balassa-Samuelson factors at play. However, after 1990, the tradable-nontradable labor productivity gap, the driver of real appreciation according to Balassa-Samuelson, virtually disappeared. So what explains the real appreciation? Assessing the role of both demand and supply factors, we find that demand pressures arising from higher income growth accounted for much of the relative price increase during the post-reform period. Falling import prices also contributed significantly, along with an increase in government spending.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 07/268.
Date of creation: 01 Nov 2007
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Other versions of this item:
- Renu Kohli & Sudip Mohapatra, 2008. "What Explains India's Real Appreciation?," India Policy Forum, Global Economy and Development Program, The Brookings Institution, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 179-244.
- NEP-ALL-2008-01-05 (All new papers)
- NEP-CBA-2008-01-05 (Central Banking)
- NEP-CWA-2008-01-05 (Central & Western Asia)
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