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

Author

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  • M. Shahe Emran

    (George Washington University)

  • M. Imam Alam

    (University of Northern Iowa)

  • Forhad Shilpi

    (The World Bank)

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.

Suggested Citation

  • M. Shahe Emran & M. Imam Alam & Forhad Shilpi, 2003. "After the "License Raj": Economic Liberalization and Aggregate Private Investment in India," Development and Comp Systems 0305002, EconWPA, revised 30 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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    More about this item

    Keywords

    Private Investment; India; Economic Liberalization; ARDL;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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