After the "License Raj": Economic Liberalization and Aggregate Private Investment in India
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.
|Date of creation:||25 May 2003|
|Date of revision:||30 Aug 2003|
|Note:||Type of Document - Scientific Word/WinEdt; prepared on PC; to print on HP; pages: 26; figures: included|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Van Wijnbergen, Sweder, 1985. "Trade reform, aggregate investment and capital flight : On credibility and the value of information," Economics Letters, Elsevier, vol. 19(4), pages 369-372.
- Rodrik, Dani, 1991.
"Policy uncertainty and private investment in developing countries,"
Journal of Development Economics,
Elsevier, vol. 36(2), pages 229-242, October.
- Dani Rodrik, 1989. "Policy Uncertainty and Private Investment in Developing Countries," NBER Working Papers 2999, National Bureau of Economic Research, Inc.
- Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
- Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
- Mohammad Hashem Pesaran & Richard J Smith & Yongcheol Shin, 1999. "Structural analysis of vector error correction models with exogenous I(1) variables," ESE Discussion Papers 38, Edinburgh School of Economics, University of Edinburgh.
- Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 581-593.
- Chatelain, Jean-Bernard, 2000. "Explicit Lagrange multiplier for firms facing a debt ceiling constraint1," Economics Letters, Elsevier, vol. 67(2), pages 153-158, May.
- Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
- Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
- Neary, J.P & Roberts, K.W.S, 1978. "The Theory of Household Behaviour under Rationing," The Warwick Economics Research Paper Series (TWERPS) 132, University of Warwick, Department of Economics.
- Guncavdi, Oner & Bleaney, Michael & McKay, Andrew, 1998. "Financial liberalisation and private investment: evidence from Turkey," Journal of Development Economics, Elsevier, vol. 57(2), pages 443-455.
- Rama, Martin, 1990. "Empirical investment equations in developing countries," Policy Research Working Paper Series 563, The World Bank.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
- R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
- Gelos, R. Gaston & Werner, Alejandro M., 2002. "Financial liberalization, credit constraints, and collateral: investment in the Mexican manufacturing sector," Journal of Development Economics, Elsevier, vol. 67(1), pages 1-27, February.
- R. G Gelos & Alejandro M. Werner, 1999. "Financial Liberalization, Credit Constraints, and Collateral; Investment in the Mexican Manufacturing Sector," IMF Working Papers 99/25, International Monetary Fund.
- Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
- Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
- Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
- Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," NBER Working Papers 6422, National Bureau of Economic Research, Inc.
- Durlauf,S.N. & Quah,D.T., 1998. "The new empirics of economic growth," Working papers 3, Wisconsin Madison - Social Systems.
- Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers 98-01-012, Santa Fe Institute.
- S Durlauf & Danny Quah, 1998. "The New Empirics of Economic Growth," CEP Discussion Papers dp0384, Centre for Economic Performance, LSE.
- Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
- Caporale, Guglielmo Maria & Pittis, Nikitas, 1999. " Efficient Estimation of Cointegrating Vectors and Testing for Causality in Vector Autoregressions," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 1-35, February.
- Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
- Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
- Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
- David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
- Fielding, David, 1999. "Manufacturing investment in South Africa: a time-series model," Journal of Development Economics, Elsevier, vol. 58(2), pages 405-427, April.
- David Fielding,, "undated". "Manufacturing Investment in South Africa: A Time-Series Model," Discussion Papers 97/5, University of Nottingham, CREDIT.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpdc:0305002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.