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Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India

Listed author(s):
  • Chetan Ghate

    ()

    (Economics and Planning Unit, Indian Statistical Institute Delhi)

  • Gerhard Glomm

    ()

    (Department of Economics, Indiana University, Indiana)

  • Jialu Liu Streeter

    ()

    (Department of Economics, Allegheny College, Pennsylvania)

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that reduce distortions raise potential growth. We show that the positive effect of a variety of policy reforms on potential growth depends on the extent to which public and private capital are complements or substitutes. We also show that funding more infrastructure investments in both sectors by raising labor income taxes in the agriculture sector raises potential growth.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/ADEV_a_00076
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Article provided by MIT Press in its journal Asian Development Review.

Volume (Year): 33 (2016)
Issue (Month): 2 (September)
Pages: 144-166

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Handle: RePEc:tpr:adbadr:v:33:y:2016:i:2:p:144-166
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  17. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
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