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Deciphering The Hindu Growth Epic

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  • Peter E Robertson

    (UWA Business School, The University of Western Australia)

Abstract

India’s investment rate has increased fourfold since 1950 and is now nearly 40% of GDP. Many studies have suggested that this rising investment rate is the most significant component of India’s growth acceleration. I assess these hypotheses using the neoclassical growth model decomposition method. Unlike other methods based on this model, such as Hall and Jones (QJE 1999), the method used in this paper does not rely on the assumption of steady state. I find that the rise in investment rates since the 1970s explains only 30% of India’s growth over that period. I conclude that, notwithstanding the high investment rates, the main source of India’s growth acceleration is the modest upward trend in productivity growth since the 1970s.

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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 10-19.

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Length: 38 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:uwa:wpaper:10-19

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Keywords: Economic Growth; India; Growth Accounting; Investment; Productivity;

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  1. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  2. Panagariya, Arvind, 2008. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780195315035.
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  4. Basu, Kaushik & Maertens, Annemie, 2007. "The Pattern and Causes of Economic Growth in India," Working Papers 07-08, Cornell University, Center for Analytic Economics.
  5. Peter E. Robertson, 2010. "Investment Led Growth In India: Hindu Fact or Mythology?," Economics Discussion / Working Papers 10-08, The University of Western Australia, Department of Economics.
  6. Athukorala, Prema-chandra & Sen, Kunal, 2001. "The Determinants of Private Saving in India," Departmental Working Papers 2001-12, The Australian National University, Arndt-Corden Department of Economics.
  7. Francesco Caselli, 2004. "Accounting for Cross-Country Income Differences," NBER Working Papers 10828, National Bureau of Economic Research, Inc.
  8. Barry Bosworth & Susan M. Collins & Arvind Virmani, 2006. "Sources of Growth in the Indian Economy," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 3(1), pages 1-69.
  9. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  10. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
  11. Barry Bosworth & Susan M. Collins, 2007. "Accounting for Growth: Comparing China and India," NBER Working Papers 12943, National Bureau of Economic Research, Inc.
  12. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  13. Robertson, Peter E, 2000. "Diminished Returns? Growth and Investment in East Asia," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 343-53, December.
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