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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Chetan Ghate & Gerhard Glomm & Jialu Liu Streeter, 2016. "Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India," Asian Development Review, MIT Press, vol. 33(2), pages 144-166, September.
  • Handle: RePEc:tpr:adbadr:v:33:y:2016:i:2:p:144-166
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    More about this item

    Keywords

    Indian economic growth; misallocation; public capital; structural transformation; two-sector OLG growth models; unbalanced growth;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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