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After the "License Raj": Economic Liberalization and Aggregate Private Investment in India

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Author Info
M. Shahe Emran (George Washington University)
M. Imam Alam (University of Northern Iowa)
Forhad Shilpi (The World Bank)

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Abstract

Using three alternative models that incorporate the behavior of both credit constrained and unconstrained firms in a theoretically consistent manner, this paper presents evidence on the effects of economic liberalization of 1991 in India. Two robust conclusions emerge from the estimation of the investment function by ARDL approach. First, the response of private investment with respect to the relative cost of capital has increased at least five times after the dismantling of the License Raj. Second, the evidence implies a significant improvement in the technological efficiency of the firms after the liberalization. In contrast, no robust conclusion can be drawn about the severity of the credit constraint faced by the private sector following the liberalization.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0305002.

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Length: 26 pages
Date of creation: 25 May 2003
Date of revision: 25 Aug 2003
Handle: RePEc:wpa:wuwpdc:0305002

Note: Type of Document - Scientific Word/WinEdt; prepared on PC; to print on HP; pages: 26; figures: included
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Related research
Keywords: Private Investment; India; Economic Liberalization; ARDL;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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