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Constructing macroeconomic performance index of Indian states using DEA

Author

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  • Biresh K. Sahoo
  • Debashis Acharya

Abstract

Purpose - The purpose of this paper is to construct a robust macroeconomic performance (MEP) index of the State economies of an emerging market economy, i.e. India. Design/methodology/approach - Two variants of data envelopment analysis (DEA) models – radial and non-radial – are proposed to construct the macroeconomic policy performance of 22 Indian State economies in the post-economic reforms era covering the period: 1994-1995 to 2001-2002, using three macroeconomic indicators: growth in gross state domestic product, price stability, and fiscal deficit. Findings - The authors' three broad empirical findings are: first, the radial and non-radial DEA models yield significantly different rankings of State economies in terms of their MEP index scores; second, as against the use of only growth in gross state domestic product and price stability for MEP measure, the inclusion of fiscal deficit as an additional indicator yields a noticeable improvement not only in the State MEP index scores, but also in their rankings, thus providing the evidence of relatively successful attempt by the Indian States in reducing fiscal deficit, in general, and legislating FRBM bill, in particular; and third, a positive significant correlation between foreign direct investment (FDI) and MEP indicates that a State's overall macroeconomic policy performance does matter to attract FDI. Research limitations/implications - Since the DEA models employed in this study ignore the possibility of asymmetric shocks, the MEP results might be questioned in this deterministic setting. However, the study period has been smooth and has not been subject to any major changes in the State economic policies. Therefore, the MEP results might not be susceptible such changes. However, further research is desired on examining the macroeconomic policy performance behavior of Indian States using bootstrapping DEA. Originality/value - None of the past Indian studies were able to give a comprehensive picture concerning the MEP behavior of Indian State economies, since the methodologies adopted in those studies were not suitable to take into consideration all the macro indicators at a time. Therefore, this present study is considered the first of its kind in assessing the MEP index of the Indian State economies by simultaneously considering all the macro indicators.

Suggested Citation

  • Biresh K. Sahoo & Debashis Acharya, 2012. "Constructing macroeconomic performance index of Indian states using DEA," Journal of Economic Studies, Emerald Group Publishing, vol. 39(1), pages 63-83, January.
  • Handle: RePEc:eme:jespps:v:39:y:2012:i:1:p:63-83
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    Citations

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    Cited by:

    1. Biresh K Sahoo & Ramadhar Singh & Bineet Mishra & Krithiga Sankaran, 2015. "Research Productivity in Management Schools of India: A Directional Benefit-of-Doubt Model Analysis," Working Papers id:7139, eSocialSciences.
    2. Mehdiloozad, Mahmood & Sahoo, Biresh K. & Roshdi, Israfil, 2014. "A generalized multiplicative directional distance function for efficiency measurement in DEA," European Journal of Operational Research, Elsevier, vol. 232(3), pages 679-688.
    3. Gabriel Villa & Sebastián Lozano, 2016. "DEA with non-monotonic variables. Application to EU governments’ macroeconomic efficiency," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(12), pages 1510-1523, December.
    4. Mohanty, Ranjan Kumar & Sahoo, Biresh K., 2017. "Examining the Eco-Macroeconomic Performance Index of India: A Data Envelopment Analysis Approach," Working Papers 17/202, National Institute of Public Finance and Policy.
    5. Chia-Chi Lee, 2014. "Performance evaluation of CPA firms in Taiwan from the perspective of industry-specific client groups," Service Business, Springer;Pan-Pacific Business Association, vol. 8(2), pages 267-293, June.
    6. Sahoo, Biresh K. & Singh, Ramadhar & Mishra, Bineet & Sankaran, Krithiga, 2017. "Research productivity in management schools of India during 1968-2015: A directional benefit-of-doubt model analysis," Omega, Elsevier, vol. 66(PA), pages 118-139.

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