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on Central and Western Asia |
| By: | Dilip M. Nachane (Indira Gandhi Institute of Development Research); Prasad P. Ranade (Narsee Monjee Institute of Management Research) |
| Abstract: | Relationship banking based on Okun's "customer credit markets" has important implications for monetary policy via the credit transmission channel. Studies of LDC credit markets from this point of view seem to be scanty and this paper attempts to address this lacuna. Relationship banking implies short-term disequilibrium in credit markets, suggesting the VECM (vector error-correction model) as an appropriate framework for analysis. We develop VECM models in the Indian context (for the period April 1991- December 2004 using monthly data) to analyse salient features of the credit market. An analysis of the ECMs (error-correction mechanisms) reveals that disequilibrium in the Indian credit market is adjusted via demand responses rather than supply responses, which is in accordance with the customer view of credit markets. Further light on the working of the model is obtained through the "generalized" impulse responses and "generalized" error decompositions (both of which are independent of the variable ordering). Our conclusions point towards firms using short-term credit as a liquidity buffer. This fact, together with the gradual adjustment exhibited by the "persistence profiles" provides substantive evidence in favour of "customer credit markets". |
| Keywords: | customer credit markets, monetary policy, co-integration, impulse response, persistence profiles |
| JEL: | C32 E51 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-010&r=cwa |
| By: | Verma, R. (University of Wollongong); Wilson, E.J. (University of Wollongong) |
| Abstract: | There is a large research literature on the roles of domestic savings and investment in promoting long run economic growth. This paper attempts to identify the major interdependencies between savings, investment, foreign capital inflows and real output for India since independence. An endogenous growth model is adapted to specify the possible complex interrelationships between the sectors of a growing economy. The time series of real per worker household, private corporate and public savings and investment, per worker foreign capital inflows and GDP are tested for stationarity under structural change where the structural break is determined endogenously. The Johansen’s FIML cointegration procedure is used to provide efficient long run and short run parameter estimates for the non-stationary variables in a simultaneous setting. The elasticity estimates provide robust evidence of the Solow proposition that household, and to a lesser extent private corporate, per worker savings have driven household per worker investment in the Indian economy from 1950 to 2001. There is also evidence of an inverse, crowding-out relationship between per worker household and public investment. Foreign capital inflow per worker is found to be unstable in the short run and residually determined by per worker household and private corporate savings and investment. Despite the strong links between the sectors, there is little evidence that sectoral per worker savings and investment affect GDP in the long run. Whilst per worker GDP has significant but small effects on per worker household savings and investment in the short run, the feedbacks to GDP are non existent in the long run and only small and imprecise in the short run. Whilst savings certainly affect investment, there are only weak links from investment to output. These findings do not support the Solow and endogenous growth policy prescriptions that it is necessary to increase household savings and investment in order to promote economic growth in India. |
| Keywords: | Savings, investment, foreign inflows, economic growth |
| JEL: | F43 E21 E22 C22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-23&r=cwa |
| By: | Verma, R. (University of Wollongong); Wilson, E.J. (University of Wollongong) |
| Abstract: | This paper considers per worker household, private corporate and public sector savings and investment, foreign capital inflows and economic growth for India in a multivariate setting for the period 1950-2001. The analysis, uses FIML to estimate the long run cointegrating equilibriums and short run Granger causing dynamics for the non-stationary time series data, which includes endogenously detected structural breaks in 1989 and 1993, consistent with the recent period of financial reforms in India. The estimates do not support the commonly accepted Solow and endogenous models of economic growth. The popular view that increases in savings are a necessary condition for economic growth is supported with the detected strong direct links from per worker household and private corporate savings to output in the long run and sectoral per worker savings to investment links in both the short and long run. This implies the need to encourage savings, which is being realised with the estimated significantly higher growth rates in household and private corporate per worker savings during deregulation in the late 1980s and early 1990s. However, the link from investment to output is missing. Despite extensive analysis, per worker private corporate and household sector investment are not found to affect output in the short run or long run as required by the Solow and endogenous growth models. Indeed household investment, being the largest sector for gross domestic capital formation, does not appear to have any influence on other variables. Per worker public investment is found to adversely affect output per worker in the short and long run, contradicting Barro’s hypothesis of the benefits of the public provision of capital. These findings, plus the estimated reductions in the rates of growth in sectoral per worker investment during the 1990s, are worrying. The lack of empirical validation of commonly accepted growth theories is p roblematic for policy formulation and further research on the role of investment in the post-reform Indian economy is required. |
| Keywords: | Savings, investment, economic growth |
| JEL: | F43 E21 E22 C22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-24&r=cwa |
| By: | Srijit Mishra (Indira Gandhi Institute of Development Research); Manoj Panda (Indira Gandhi Institute of Development Research) |
| Abstract: | Maharashtra is among the richest states in India in terms of per capita income, yet incidence of poverty in the state remains close to the national average. The state's economy grew at a faster rate than the all-India average during 1980-1 to 1992-3, but it slowed down a bit during 1993-4 to 2003-4 due to poorer performance of agriculture and industry. Agriculture's contribution to GSDP has come down to 12 per cent in 2002-3, but more than 50 per cent of total workers are still engaged in this. Cropping pattern has been shifting to greater value addition non-cereal crops like fruits, vegetables, oilseeds and sugarcane. Composition of manufacturing has shifted towards more capital-intensive sectors. Communication, transport and public administration have accounted for large part of service growth. The benefits of this growth process have, however, not spread equally across social groups or regions, which partly explains prevalence of high poverty compared to other states at similar mean income. The much talked about Maharashtra Employment Guarantee Scheme (MEGS) has had limited success and its coverage across districts/divisions is not proportionate to the share of poor. Despite these developments, rural poverty has reduced from 38 per cent in 1993-4 to around 24 per cent in 1999-2000. Given current investment flows, the overall growth potential of Maharashtra does look bright for the medium run. But, distributional implications of the emerging growth pattern across sectors suggest that the poor might not benefit proportionately from the growth process. The lessons that Maharashtra provides is that growth has to be more broad-based and inclusive, and that intervention through social welfare programmes like MEGS should be designed to suit the local resource base of poorer regions for faster poverty reduction. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2006-001&r=cwa |
| By: | Virmani Vineet |
| Abstract: | This study is part of an on-going work on assessing the information content of the term structure in India for future inflation, future short rates and real interest rates. In this part, first the Indian term structure is modeled using three alternative specifications and changes in slope of the term structure at the short-end assessed for forecastability of inflation. Performance of two atheoretical (Nelson and Siegel, 1987 and Svensson, 1994) models is compared against empirical implications of a general equilibrium (Cox, Ingersoll and Ross, 1985) model. While Svensson is seen to offer no improvement over Nelson-Siegel, Cox-Ingersoll-Ross comes out as marginally superior to both on the criteria of mean absolute pricing and yield errors (both in-sample and out-of-sample), behaviour of the short and the long rates, stability of the parameters and behaviour of forward rates for maturities 1-8 years. This is encouraging because models like Nelson-Siegel and Svensson are designed to fit the observed yield curves, while Cox-Ingersoll-Ross is a theoretical model derived from intertemporal description of a competitive economy. On the information content of the term structure, in the sample under study, change in the slope of the term structure seems to have no information for inflation changes over the horizon 1 month to 2 years. Results could be sample and/or sampling-frequency specific. Results for the long end of the term structure (from a bigger sample) follows. |
| Date: | 2006–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2006-03-01&r=cwa |
| By: | Marashdeh, Hazem (University of Wollongong); Wilson, E.J. (University of Wollongong) |
| Abstract: | This paper tests for structural changes in the price indices of four stock markets in the Middle East region, namely, Egypt, Turkey Jordan, Morocco and Israel. The Innovational Outlier (IO) model and Additive Outlier (AO) model indicate that all variables show evidence of non-stationarity, I(1), even with structural change. Moreover, the coefficients for all dummy variables such as intercept, slope and time of the break are found to be significant and all have the right signs. The endogenously determined times of the breaks for all variables coincides with observed real events for each country, like Asian crises, fluctuation in oil prices and the political conflict in the Middle East. |
| Keywords: | Structural changes, Middle East stock markets, Israel, Arab countries |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-22&r=cwa |
| By: | Christophe Muller (Universidad de Alicante); Sami Bibi (Faculté des Sciences Economiques et de Gestion de Tunis (FSEGT)) |
| Abstract: | This paper introduces a new methodology to target direct transfers against poverty. Our method is based on observable correlates and on estimation methods that focus on the poor. Using data from Tunisia, we estimate ‘focused’ transfer schemes that improve anti-poverty targeting performances. Post-transfer poverty can be substantially reduced with the new estimation method. The impact of these schemes on the welfare of the poor is also much stronger than the current food subsidies system in Tunisia. Finally, the obtained levels of undercoverage of the poor is so low that ‘proxy-means’ focused transfer schemes becomes a realistic alternative to price subsidies, likely to avoid social unrest. |
| Keywords: | Poverty; Targeting; Transfers |
| JEL: | D12 D63 H53 I32 I38 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-01&r=cwa |
| By: | Pahlavani, Mosayeb (University of Wollongong) |
| Abstract: | This paper examines the major determinants of GDP growth in Iran using annual time series data spanning from 1960 to 2003. The Iranian economy has been subject to a multitude of structural changes and regime shifts during the sample period. Thus, time series properties of the data are first analysed by Zivot-Andrews (1992) model. The empirical results based on this model indicate that there is not enough evidence against the null hypothesis of unit roots for all of the variables under investigation. Taking into account the resulting endogenously determined structural breaks; the Saikkonen and Luetkephol (2000) cointegration approach is then employed to determine the long-run drivers of economic growth. This cointegration technique accommodates potential structural breaks that could undermine the existence of a long-run relationship between GDP growth and its main determinants. Empirical estimates indicate that in the long-term, policies aimed at promoting various types of physical investment, human capital, trade openness and technological innovations will improve economic growth. |
| Keywords: | structural break, unit root tests, cointegration technique, Iranian economy |
| JEL: | C12 C22 C52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-28&r=cwa |
| By: | Harvie, Charles (University of Wollongong); Pahlavani, Mosayeb (University of Wollongong); Saleh, Ali Salman (Monash University Malaysia) |
| Abstract: | During the 1960s and early 1970s the Lebanese economy was characterized by low inflation, high growth, sizeable balance of payments surpluses and small public sector deficits, which made it a highly attractive business centre. During this period the country was described as the Switzerland or Paris of the East. This macroeconomic stability did not last long, however, as the economy subsequently underwent fundamental structural changes during most years after the mid 1970s. The aim of this paper is to identify the timing of major structural breaks in the Lebanese economy by applying the Zivot and Andrews (ZA) (1992) procedure, using annual time series data spanning the years from 1970 through 2003. The empirical results from the ZA model, which endogenously identifies the most significant structural breaks in each of the macroeconomic variables, clearly show that the null hypothesis of at least one unit root could be rejected for some of the variables under investigation. In other words, some of the variables, which contain a unit root based on the conventional unit root test, become stationary after taking into account the existence of potential structural breaks in the series . The results are statistically significant and the endogenous structural breaks identified using this methodology also coincides with periods of major economic shocks to the Lebanese economy. More specifically, most of the structural changes are associated with: the years of the Civil War in Lebanon, which started in 1975; the post 1982 era which started with the Israeli invasion of Beirut in 1982; the deep recession in 1983-84; and the adverse effects of the 1988-89 currency depreciation on inflation and the real economy. |
| Keywords: | Structural break, unit root test, Lebanon economy |
| JEL: | C12 C22 C52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp06-02&r=cwa |
| By: | Pahlavani, Mosayeb (University of Wollongong) |
| Abstract: | This paper examines the major sources of economic growth in Iran using annual time series data (1960 to 2003). The time series properties of the data are analysed by Perron’s innovational outlier and additive outlier models. The empirical results based these models show that there is not enough evidence against the null hypothesis of unit root for all of the variables under investigation. Moreover, we found that the most significant structural breaks over the last four decades which have been detected endogenously in fact correspond to the regime change (e.g the 1979 Islamic revolution) and the Iraqi war in the 1980s. Finally, an ARDL methodology is employed to obtain the short and long-term determinants of economic growth. The results show that while the effects of gross capital formation and oil exports are highly significant, as expected, non-oil exports and human capital have an even smaller effect than had been anticipated. |
| Keywords: | structural break, unit root tests, ARDL method, Iranian economy |
| JEL: | C12 C22 C52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-25&r=cwa |