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

  • M. Shahe Emran

    (George Washington University)

  • M. Imam Alam

    (University of Northern Iowa)

  • Forhad Shilpi

    (The World Bank)

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.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0305002.

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Length: 26 pages
Date of creation: 25 May 2003
Date of revision: 25 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
Contact details of provider: Web page: http://econwpa.repec.org

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