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Indian Economic Growth: Lessons for the Emerging Economies

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  • Chakraborty, Suparna

Abstract

Can we use neoclassical growth model to single out the important transmission channels through which external factors or ?primitives? affected the Indian economy and caused the remarkable growth of the period 1982?2002? In this paper, we answer the question by applying the new technique of business cycle accounting to the Indian economy. Our results show us that the primary conduit of policies that brought about significant growth in India was productivity that registered an unprecedented increase particularly in the 1990s. Our results further indicate that changes in labour market frictions and investment market frictions did not play a significant role, though increased government consumption aided growth by propping up demand. In addition, we examine the effective tax rates in India and find that while investment taxes barely fluctuated, income tax rates were increasing throughout. We suspect other positive developments in the Indian economy overwhelmed the negative effect of increasing labour income taxes on growth. Our result suggests that any emerging country that aims to replicate the Indian experience would do well to formulate policies that target productivity, a lesson that seems consistent with the Japanese experience since the Second World War.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2008/rp2008-67.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2008/67.

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Length: 24 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:unu:wpaper:rp2008-67

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Keywords: business cycle accounting; India; growth; wedges; neoclassical growth; taxes;

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References

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  1. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," NBER Working Papers 10376, National Bureau of Economic Research, Inc.
  2. Timothy Kehoe & Kim Ruhl, 2003. "Recent great depressions: Aggregate growth in New Zealand and Switzerland, 1973-2000," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(1), pages 5-40.
  3. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
  4. Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
  5. Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2001. "A Decade Lost and Found: Mexico and Chile in the 1980s," Documentos de Trabajo 110, Centro de Economía Aplicada, Universidad de Chile.
  6. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
  7. Timothy J Kehoe & Kim J. Ruhl, 2003. "Recent Great Depressions: Aggregate Growth in New Zealand and Switzerland," Levine's Working Paper Archive 506439000000000529, David K. Levine.
  8. Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers 313, Society for Economic Dynamics.
  9. Nirvikar Singh & T.N. Srinivasan, 2004. "Indian Federalism, Economic Reform and Globalization," Public Economics 0412007, EconWPA.
  10. Nirvikar Singh, 2004. "Information Technology as an Engine of Broad-Based Growth in India," Development and Comp Systems 0412012, EconWPA.
  11. Pedro Amaral & James Macgee, 2002. "Data Appendix to The Great Depression in Canada and the United States: A Neoclassical Perspective," Technical Appendices amaral02, Review of Economic Dynamics.
  12. Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "Data Appendix to A Decade Lost and Found: Mexico and Chile in the 1980s," Technical Appendices bergoeing02, Review of Economic Dynamics.
  13. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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Cited by:
  1. Chakraborty, Suparna & Otsu, Keisuke, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," MPRA Paper 41076, University Library of Munich, Germany.

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