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An empirical investigation on the inter-sectoral linkages in India

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  • Kaur, Gunjeet
  • Bordoloi, Sanjib
  • Rajesh, Raj
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    Abstract

    For a developing country like India where socio-economic problems such as poverty,unemployment and inequality influence policy decisions, it becomes important to study interlinkages among the constituent sectors so that positive growth impulses emerging among the sectors could be identified and fostered to sustain the growth momentum. An in-depth understanding of inter-sectoral dynamics becomes all the more important for policy makers so that effective monetary, credit and fiscal policies could be designed in order to be able to achieve the broader objective of inclusive development. In this backdrop, the present paper endeavors to study inter-sectoral linkages in the Indian economy both through input-output (I-O) approach and econometric exercises using co-integration and state-space models. Cointegration analysis is carried out both at sectoral and sub-sectoral levels since mid-1980s. At the broad sectoral level, primary, secondary and tertiary (excluding community, social and personal services) sectors display strong long-run equilibrium relationship amongst each other. These sectors also display strong long-run equilibrium relationship with one another in a bivariate framework. At the sub-sectoral level, existence of long-term equilibrium was found between ‘trade, hotels, transport & communication’ and ‘manufacturing’ sectors. Further, the financial sector activity in the ‘banking & insurance’ sector was found to be co-integrated with the ‘manufacturing’ and ‘primary’ sectors. The sectors, which displayed long-run equilibrium relationships, were re-estimated through state space model using Kalman filter. This also corroborated that variation in one sector influenced the other sector’s performance over time. In view of the prevailing sectoral inter-relationships, the paper explores policy options so that positive growth impulses developing among the sectors are fostered.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40419.

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    Date of creation: 2009
    Date of revision: 2009
    Publication status: Published in RBI Occassional Papers 1.30(2009): pp. 29-72
    Handle: RePEc:pra:mprapa:40419

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    Keywords: Macroeconomic analysis of economic development; Input–Output Tables; Inter-sectoral Linkages; Agriculture; Industry; Services;

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    1. Allan G. B. Fisher, 1939. "Production, Primary, Secondary And Tertiary," The Economic Record, The Economic Society of Australia, vol. 15(1), pages 24-38, 06.
    2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    3. Sangeeta Dhawan & K. K. Saxena, 1992. "Sectoral Linkages and Key Sectors of the Indian Economy," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27(2), pages 195-210, July.
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