Is PMI Useful in Quarterly GDP Growth Forecasts for India? An Exploratory Note

This paper examines the relationship between India’s quarterly overall GDP, manufacturing GDP and services GDP and the corresponding monthly data on overall manufacturing and services PMI for the period January 2006 to July 2014. The objective is to see if the two overall PMIs are related to the level and quarterly growth rate of overall GDP and its chosen components. Considering the quarterly time series nature of the data set, the HEGY equation of Hylleberg et al. (J Econom 44:215–238, 1990) extended by adding the PMI variables as exogenous regressors is used as the regression mode to relate a GDP level/growth rate variable to the two overall PMI variables. The results show that the three GDP level variables, but none of the GDP growth rate variables, have significant positive correlation with services PMI, but not with manufacturing PMI. Finally, the marginal effect of services PMI on manufacturing GDP level is found to be the largest, followed by that for overall GDP level and services GDP level.

     

Growth in India’s Service Sector: Implications of Structural Breaks

The paper is an attempt to identify the multiple structural breaks in India’s GDP, as well as its main growth enhancing sector i.e., services and its components and subsequently calculate the growth rate in different regimes. The paper uses the Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology of estimating multiple endogenous structural breaks (both pure and partial) in India’s service sector and its components and GDP during 1950–2010. Further, the paper uses the Boyce (Oxf Bull Econ Stat 48:385–391, 1986) methodology of estimating kinked exponential model of the growth rate, and further uses the Banerjee, Lumsdaine and Stock (J Business Econ Stat 10:271–287, 1992) test and the Lumsdaine and Pappel (Rev Econ Stat 79:212–218, 1997) test to check for the stationarity in the presence of structural breaks. The data used in this paper are the components of subsectors of services GDP and GDP at factor cost (with 2004–2005 as base). It is found that there is very little difference between the estimation of pure and partial structural break dates in India’s services GDP and its subsectors and four such breaks have been identified with help of Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology. The Boyce methodology of estimation of growth rates finds that mainly in the third and fourth regimes, the growth rates are highest in the subsectoral as well as at the aggregate levels of services GDP. The Banerjee, Lumsdaine and Stock test (J Business Econ Stat 10:271–287, 1992) and the extended Lumsdaine and Pappel test (Rev Econ Stat 79:212–218, 1997) cannot negate the presence of unit root in the data, irrespective of the presence of multiple structural breaks. The paper concludes with the identification of four broad regimes of growth of India’s services GDP and in the subsectors with possible explanations thereof.

     

Greece’s Potential Trade Flows: A Gravity Model Approach

This paper attempts to access whether Greece’s low openness is a reflection of its low trade integration primarily as a result of the country’s relatively poor goods export performance. The analysis estimates potential trade flows for Greece through a gravity model using a panel of cross-country data, which cover bilateral trade flows concerning the EU member states. These flows are then derived by applying the estimated parameters to the Greek economy. The results show that actual Greek exports fall short of potential ones, while the opposite is true with respect to imports. This becomes more profound when the extent of intra-industry trade is included in the analysis. The findings for the Greek exports differ considerably from the corresponding ones for Portugal, a country with similar characteristics, manifesting the limited convergence of Greece’s trade patterns towards the EU average as well as its unique geographical location relatively to the other EU countries.

India’s petroleum demand: estimations and projections

Energy security is crucial for sustaining high economic growth in India. This article empirically estimates India’s long- and short-term demand relations for crude oil, diesel and petrol (gasoline) using the ARDL and ECM cointegration procedures and then uses them to project demand for these products up to 2025 under various scenarios of GDP growth and oil prices. Our projections show that over 2012 to 2025, demand is likely to increase by about 74% for crude oil, 117% for diesel and 136% for petrol – the annual growth rates being about 4.3% for crude oil, 6.1% for diesel and 6.8% for petrol (gasoline). This article suggests that India needs to (1) take measures to improve efficiency in the use of petroleum products; (2) try to enhance supplies such as through production sharing agreements by Indian oil companies with other countries and (3) increase the use of nuclear, hydro, solar and other alternative energy sources, as Western European countries have done.     

The Determinants of Firm’s Growth in the Telecommunication Services Industry: Empirical Evidence from India

The growth and evolution of the industry has an important bearing on the economic development of a country. The extant literature on firm growth provides valuable insights into firm behavior and factors influencing the evolution of the industry over time. The topic becomes even more relevant in the context of the telecommunication industry because of its positive impact on economic growth and productivity, which has been well documented in both the developed and developing country context. Based on the firm-growth literature, this study analyzes the factors influencing the growth of the Indian telecommunication industry using an unbalanced panel of 204 firms across two decades from 2000 to 2020. Dynamic Panel estimation technique (System GMM) is used to take care of endogeneity issues caused by the dynamic nature of firm growth models. Results indicate that the growth of firms in the Indian telecom services industry is explained by systematic factors like size, age, profitability, financial leverage, and trade orientation. The study finds that the larger firms grow at a decreasing rate compared to small firms. The firm's age negatively impacts the growth rate of firms, i.e., younger firms have a faster growth rate than the older ones supporting the case of convergence of firm growth in the Indian telecom services sector. Factors such as lagged R&D intensity, financial leverage, and profitability negatively impact the firms’ growth rate. Export intensity is found to have a negative and significant impact on the growth rate of the firms. The findings have important policy implications in the context of the growth of the telecommunication industry in India, which has witnessed intense competition, steep decline in profitability, and high debt structure over a period of time.

     

Fisher’s Effect: An Empirical Examination Using India’s Time Series Data

The study examines the Fisher’s hypothesis using India’s macroeconomic data with main objective of ascertaining the empirical relationship between nominal interest rate and expected inflation. The study collected monthly time series data on interest rate (lending rate) and CPI growth rate (inflation) from Reserve Bank of India’s database spanning from 1990M01 to 2015M03. To achieve the objective, the study first examined the univariate stochastic properties of the series using test that assumed the presence of structural: Zivot and Andrews (J Bus Econ Stat 10(3):251–270, 1992) and Perron (J Econ 80:355–385, 1997) on one hand and those that assumed no break: Elliot et al. (Econometrica 64:813–836, 1996) and Kwiatkowski et al. (J Econom 54:159–178, 1992) on the other hand. The result for the univariate stochastic properties revealed that inflation is level stationary whereas lending rate is differenced stationary. This finding is consistent with the two tests considered as mentioned above. To examined the Fisher’s effect, given the result of the univariate stochastic properties, the study checked the multivariate counterpart using test that assumed break; Gregory and Hensen (J Econom 70:99–126, 1996) and the one that assumed no break; Pesaran et al. (J Appl Econom 16:289–326, 2001). The result reveals the absence of long run equilibrium between nominal interest rate and inflation for the full and sub-samples which is against Fisher’s proposition. This finding can be attributed to the following reasons: firstly, the conduct of monetary policy by RBI is passive; that is, the policy rate response less than proportionate to change in inflation. Secondly, the presence of distortion in the interest rate pass-through channel makes the sign, speed and magnitude of monetary policy uncertain and finally, the dominant of informal financial sector in India that makes short term policy rate ineffective monetary policy instrument. Therefore the study concludes that the conduct of monetary policy is responsible for the rejection of Fisher’s hypothesis in India.

     

Analysts’ Forecast Dispersion and Stock Returns: A Quantile Regression Approach

Prior research has not provided conclusive evidence on the association between analysts’ forecast dispersion and subsequent stock returns. Since inferences from prior studies may be confounded by research design choices, we use the quantile regression (QR) approach and assess the hidden non-monotonic relations between dispersion and stock returns within a broader sample. The empirical results show that dispersion is negatively associated with subsequent stock returns when the latter is in lower quantiles. In contrast, when the stock returns are in high quantiles, dispersion is positively associated with subsequent stock returns. Moreover, the association between dispersion and stock returns is trivial when the mid-range return quantiles are concerned. These non-uniform connections between dispersion and stock returns reflect the different status of overpricing correction process. Our findings help to reconcile the mixed results reported by prior research concerning the relation between analysts’ forecast dispersion and subsequent stock returns.     

Vicarelli’s Keynes (and today’s international disorder)

The article speculates about the legacy of Fausto Vicarelli’s interpretation of John Maynard Keynes’s work in the times of a major global crisis. In particular, it puts an emphasis on those aspects of Keynes’s “method” that Vicarelli rightly considered as revolutionary in his Keynes, of 1977, as well as in other writings. The article then turns to Vicarelli’s reconstruction of Keynes’s early work in international economics (Indian Currency and Finance, Economic Consequences of the Peace) and reflects upon the continuing relevance of the philosophy inspiring Keynes’s plans of global reform in the Forties, also in the light of Vicarelli’s (Keynes-inspired) vision of the problem of policy space at the international level.     

Exploring the spatial determinants of children’s activities: evidence from India

This article investigates the choice of children’s activities in India and provides recommendations for areas where policy intervention to promote schooling and combat child labor would be most successful. First, we recognize that child schooling and labor are not the sole activities that children can engage in and include idleness as one of the choices. Second, we use a hierarchical model with spatially correlated random effects to analyze the determinants of the choice of children’s activities. Lastly, we recommend that pro-schooling intervention be implemented in districts with favorable attitudes toward schooling and unfavorable attitudes toward idleness, while anti-child-labor interventions be implemented in districts where attitudes toward child labor are less favorable. We thus identify two groups of Indian districts to target appropriate government interventions.     

Keynes’s Principle(s) of Effective Demand: Redefining His Revolution

Much of critical social science today argues that the oil crisis must be resolved by getting away from it: Alternative energy is the only answer to peak oil. Yet, recent massive and continuing oil discoveries in Africa have been offered as a potential stop-gap measure to simultaneously improve socio-economic conditions and enhance energy security on that continent, as well as to bridge global income inequalities, while supporting the energy needs of richer countries, especially at a time of continuing disquiet in the major oil producing centers in the world. Memories of plunder of African resources, formed by years of “resource curse,” however, erect dark clouds over the possibility of using oil to achieve the seemingly irreconcilable aims of oil benefit to both Africa and the rest. Australia finds itself at these crossroads: It has a looming oil crisis and an emergent relationship with Africa. In this paper, I argue for a non-determinist, research-led approach to resolve this imbroglio.     

The Structure and Composition of India’s Exports and Industrial Transformation (1980–2000)

Abstract

This paper analyses structural change in Indian manufactured exports empirically for 143 (mainly manufacturing) industrial groupings. Trade indices such as Balassa’s revealed comparative advantage (RCA) index and variants are used. Detailed econometric analysis is employed to examine structural change. The stability and the process of the intertemporal evolution of the RCA indices is considered. Three technology categories (high technology, medium technology and low technology) are analysed individually. Our results point towards substantial industrial restructuring in manufactured exports. We find evidence of despecialisation within India’s manufactured exports for the time period studied, which is consistent with increasing specialisation in a subset of manufactured exports.     

An Application of Quah and Vahey’s SVAR Methodology for Estimating Core Inflation in India: A Note

Inflation, calculated as year-on-year per cent change in general price level, represents a combined effect of several types of price changes. The monetary authorities primarily focus to track that part of inflation, which can be effectively monitored and controlled using various monetary instruments. This persistent component of inflation is termed as ‘Core Inflation’, which possesses long-run properties as well as predictive power to forecast inflation. This paper makes use of Quah and Vahey’s definition of core inflation as that component of headline inflation, which has no impact on output in medium to long run and estimates it by placing restrictions on vector auto regression system with inflation and output growth. The analysis is based on monthly data from April 1995 to January 2009. Empirical results showed that in India, during 2006 and 2007, the inflation process was stronger than what headline inflation figures actually depicted and in 2008 the inflationary process has tended to be somewhat weaker than what was observed in headline inflation.

     

Pasinetti's ‘Structural Change and Economic Growth’: A Conceptual Excursus

A clear and organic exposition of Pasinetti's theoretical framework of Structural Change and Economic Growth has been prevented by misunderstandings and ambiguities concerning basic categories and terminology. The pre-institutional character of the approach, the nature of its equilibrium paths and the significance—and normative character—of the ‘natural’ economic system are some of the most controversial issues. The aim of this article is to present a conceptual excursus of the model to establish a solid foundation for fruitful discussions to be held with other Classical approaches.     

Piketty’s Elasticity of Substitution: A Critique

This article examines Thomas Piketty’s explanation of a falling wage share. Piketty explains rising income inequality between labor and capital as a result of one parameter of a production function: an elasticity of substitution, σ, between labor and capital greater than one. This article reviews Piketty’s elasticity argument, which relies on a non-standard definition of capital. In light of the theory of land rent, it discusses why the non-standard capital definition is a measure of wealth, not capital and is problematic for estimating elasticities. It then presents simple long-run estimates of σ in constant elasticity of substitution functions for Piketty’s data as well as for a subset of his capital measure that comes closer to the standard definition of productive capital. The estimation results cast doubt on Piketty’s hypothesis that σ is greater than one.     

Determinants and impacts of subcontracting: evidence from India’s unorganized manufacturing sector

There are two divergent perspectives on the impact of subcontracting on firms in the informal sector. According to the benign view, formal sector firms prefer linkages with relatively modern firms in the informal sector, and subcontracting enables capital accumulation and technological improvement in the latter. According to the exploitation view, formal sector firms extract surplus from stagnant, asset-poor informal sector firms that use cheap family labour in home-based production. However, direct, firm-level evidence on the determinants and impact of subcontracting is thus far lacking in the literature. We apply a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005–2006). We find that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship. Further, we perform selectivity-corrected Oaxaca-Blinder Decomposition and calculate treatment effects to show that subcontracting benefits smaller firms, firms in industrially backward states and rural firms; it is harmful for larger firms, firms in industrially advanced states, and urban firms. Our results suggest that the effects of subcontracting are more complex than those predicted by the divergent perspectives. Policy-makers need to engage with this complexity.     

A flying goose chase: China’s overseas direct investment in manufacturing (2011–2013)

This paper examines whether rising wages have driven Chinese manufacturers to make foreign direct investment abroad to reduce the costs of production. We match the Chinese Ministry of Commerce’s register of Overseas Direct Investments with China’s Industrial Enterprise Survey data from 2011 to 2013 and annual average wage data for prefecture-level cities. Although high-income developed economies are the preferred destinations for Chinese manufacturing investment abroad, labor-intensive light manufacturing sectors related to the textiles, clothing and leather industries are focused on the low-income countries – consistent with a ‘flying goose’ effect. But, these are only a small part of the Chinese investment – account for 6% of the number of matched official ODI registrations. Yet, it might be still too early to observe that rising factor prices are systematically driving investments offshore.