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.

     

The power of asymmetric unit root tests under threshold and consistent-threshold estimation

The asymmetric unit root tests of Enders and Granger (Journal of Business and Economic Statistics, 16, 304–11, 1998) are examined using consistent threshold estimation and the original two-step procedure. In contrast to earlier studies, the ability of the tests to jointly reject the unit root and symmetry hypotheses is examined, thus permitting a fuller analysis of the tests' properties. Whilst the threshold autoregressive test is found to have little power in either its consistent or original forms, the consistent momentum-threshold autoregressive test is found to exhibit high power against a range of plausible alternatives when using newly derived critical values.     

The structure of tourist expenditure in Fiji: evidence from unit root structural break tests

The central aim of this paper is to investigate whether shocks to Fiji's tourism industry have a permanent effect or a transitory effect on tourist expenditure in Fiji. To accomplish this aim the Zivot and Andrews (1992 Zivot, E and Andrews, D. 1992. Further evidence of the great crash, the oil-price shock and the unit-root hypothesis. Journal of Business and Economic Statistics, 10: 251–70.  ) one break test and the Lumsdaine and Papell (1997 Lumsdaine, R and Papell, D. 1997. Multiple trend breaks and the unit root hypothesis. Review of Economics and Statistics, 79: 212–18.  ) two break tests are used. The one break and two break tests reveal 1987 – the year of the military coups in Fiji – as the year of the break. Moreover, it is possible to reject the unit root null leading to the conclusion that shocks to Fiji's tourism industry have a transitory effect on tourist expenditure in Fiji.     

Threshold Effects on the Relationship Between Inflation Rate and Economic Growth in Tunisia

Using an econometric technique suggested by Hansen [(2001). The new econometrics of structural change: Dating breaks in U.S. Labor productivity. Journal of Economic Perspectives, 15, 117–128], this paper studies the inflation–economic growth nexus in the case of Tunisia for the 1993-01–2012-11 period. The results show that there is one inflation threshold value that does exist for Tunisia. This evidence strongly sustains the view that the relationship between inflation rate and economic growth is non-linear. The estimated threshold regression model suggests that a threshold value of inflation rate below 3.48% fosters economic growth. In addition, above this threshold level, there is a statistically significant negative relationship between inflation rate and economic growth. These results have important implications to policy-makers who should pay attention to the inflation phenomena. Therefore, a new policy that takes into account such a threshold should be set up.     

Disentangling the Predictive Power of Term Spreads under Inflation Targeting

Under inflation targeting, S. Cho and J. Lee (2014, Inflation targeting and predictive power of term spreads. Seoul Journal of Economics, 27, 391–419), A. Estrella (2005, Why does the yield curve predict output and inflation? The Economic Journal, 115, 722–744) and P.L. Siklos (2000, Inflation targets and the yield curve: New Zealand and Australia versus the US. International Journal of Finance &; Economics, 5, 15–32) have reported that the predictive power of yield spreads for future inflation decreases in inflation targeting countries. In this paper, we decompose the yield spread into the expectations hypothesis component and the term premium, and find that the decrease in the predictability is mostly due to the deterioration of information embedded in the expectations hypothesis component. Our finding reveals that if inflation targeting is successful in achieving its main goal, then the expectations for future inflation are anchored at the target inflation rate (or range), and thereby the predictive contents of the term spreads regarding future inflation decrease.     

Overeducation,undereducation, and the theory of career mobility

The theory of career mobility (Sicherman and Galor, Journal of Political Economy, 98(1), 169–92, 1990) claims that wage penalties for overeducated workers are compensated by better promotion prospects. Sicherman (Journal of Labour Economics, 9(2), 101–22, 1991) was able to confirm this theory in an empirical study using panel data. However, the only retest using panel data so far (Robst, Eastern Economic Journal, 21, 539–50, 1995 Robst, J. 1995. Career mobility, job match, and overeducation. Eastern Economic Journal, 21: 539–50.  ) produced rather ambiguous results. In the present paper, random effects models to analyse relative wage growth are estimated using data from the German Socio-Economic Panel. It is found that overeducated workers in Germany have markedly lower relative wage growth rates than adequately educated workers. The results cast serious doubt on whether the career mobility model is able to explain overeducation in Germany. The plausibility of the results is supported by the finding that overeducated workers have less access to formal and informal on-the-job training, which is usually found to be positively correlated with wage growth even when controlling for selectivity effects (Pischke, Journal of Population Economics, 14, 523–48, 2001).     

Do economics journal archives promote replicable research?

Abstract. All the long‐standing archives at economics journals do not facilitate the reproduction of published results. The data‐only archives at Journal of Business and Economic Statistics and Economic Journal fail in part because most authors do not contribute data. Results published in the FRB St. Louis Review can rarely be reproduced using the data+code in the journal archive. Recently created archives at top journals should avoid the mistakes of their predecessors. We categorize reasons for archives' failures and identify successful policies.     

Chaos in East European black market exchange rates

In this paper we test for deterministic chaos in seven East European black market exchange rates, using Koedijk and Kool's (1992, Journal of Business and Economic Statistics, 10, 83-96) monthly data from January 1955 through May 1990. In doing so we use three (non-parametric) inference methods, the BDS (Brocket al., 1996, Econometric Reviews, 15, 197-235) test for whiteness, the Lyapunov exponent estimator of Nychkaet al.(1992, Journal of the Royal Statistical Society, 12, 135-136) as well as the Lyapunov exponent estimator of Gencay and Dechert (1992, Physica D, 59, 142-157). We find some consistency in inference across methods, and we conclude, based on the Nychkaet al.(1992) estimator, that there is evidence consistent with a chaotic non-linear generation process in only two out of seven series.     

Hardened Budgets and Enterprise Restructuring: Theory and an Application to Romania

We identify the presence of soft budgets and analyze their impact on enterprise restructuring in Romania over the initial transition period. A simple analytical framework is developed to show that hardened budget constraints foster rationalization of costs but not new investment. The latter requires availability of external financing. The model emphasizes the importance of the credibility of hardened budgets and the empirical findings are consistent with its predictions. Using a sample of over 4000 Romanian enterprises from 1992 to 1995, we show that hardened budget constraints induce labor shedding. However, there is no evidence of new investments. J. Comp. Econ., December 2001, 29(4), pp. 749–763. University of Sienna, Central European University, and CEPR; and World Bank and CEPR. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: G32, G34.     

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.

     

Will the Future Be Better Tomorrow? The Growth Prospects of Transition Economies Revisited

The favored approach in the literature on the growth prospects for transition economies is based on specifications from Barro (1991) and Levine and Renelt (1992). This paper examines this literature critically by identifying and testing for the underlying assumptions. Our main finding is that this approach performs poorly in the transition context. Our results indicate that, almost a decade after the transition began, the former centrally planned economies are still structurally different from market economies at similar levels of per capita income. The legacies of central planning are more resilient than previously thought. J. Comp. Econ., December 2001, 29(4), pp. 663–676. University of Newcastle, Newcastle upon Tyne, and Centre for Economic Policy Research, London, United Kingdom; and The William Davidson Institute at the University of Michigan, Ann Arbor, Michigan. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: E23, O40, P20, P52.     

Rent Seeking and Government Ownership of Firms: An Application to China''s Township–Village Enterprises

Using its control of regulated inputs, a government agency extracts rents from a manager who undertakes an investment. Such government rent-seeking activity leads to a typical hold-up problem. Government ownership serves as a second-best commitment mechanism, through which the government agency will restrain itself from the rent-seeking activity and may even offer the manager assistance in the form of tax breaks and subsidies. This mechanism works at a cost, however, as government ownership also compromises ex post managerial incentives and creates distortion in resource allocation. Nevertheless, government ownership Pareto dominates private ownership under certain conditions. These conditions correspond to a host of stylized empirical observations concerning local-government-owned firms, i.e., township–village enterprises, during China's transition to a market economy.J. Comp. Econ., June 2002 30(4), pp. 787–811. Department of Economics, University of Illinois at Urbana–Champaign, 328 David Kinley Hall, Urbana, Illinois 61801. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: D23, D72, L33.     

ENDOGENOUS CYCLICAL GROWTH WITH A SIGMOIDAL DIFFUSION OF INNOVATIONS

The model we propose in this paper is an extension of the one described in Freeman et al. [Freeman, S., Hong, D. and Peled, D. (1999) Endogenous Cycles and Growth with Indivisible Technological Developments. Review of Economics Dynamics, 2, 403–432]. In our model, we incorporate the process of diffusion of major innovations and analyze macroeconomic effects on consumption, capital and aggregate output. Following Bresnahan and Trajtenberg [Bresnahan, T. and Trajtenberg, M. (1995) General Purpose Technologies: Engines of Growth?. Journal of Econometrics, 65, 83–108.], Helpman [Helpman, E. (ed.) (1998) General Purpose Technologies and Economic Growth. MIT Press] and Lipsey et al. [Lipsey, R.G., Carlaw, K. and Bekar, C. (2005) Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press.] we assimilate major innovations with the emergence of certain GPTs, and we suggest that the diffusion process for these technologies, at a large scale, might follow an S-shaped pattern. The proposed model presents optimum stationary solutions which are cyclical and have a wave dynamic within each cycle. The cycles are characterized by certain co-movements in consumption, R&D investment, capital accumulation and output. Consideration of the innovation diffusion process highlights new aspects of endogenous cycles and long-run growth.     

Debt Overhang and Barter in Russia

This paper develops a model in which costly barter is used by firms to protect working capital against outside creditors. Although creditors could agree to postpone debt payments and to avoid destroying the firm's working capital, if the firm cannot commit not to divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater is the debt overhang, the more likely is the use of barter, with and without the possibility of debt restructuring. Empirical evidence from Russian firm-level data is shown to be consistent with the model's predictions. J. Comp. Econ., December 2002, 30(4), pp. 635–656. New Economic School, CEFIR, CEPR, and WDI, Nakhimovsky pr. 47, Moscow 117418, Russia; Sloan School of Management, M.I.T., 50 Memorial Drive, Cambridge, Massachusetts 02142; and ROSES–CNRS and CEPR, Maison des Sciences économiques, 106–112 Bd de l'Hôpital, 75647 Paris Cedex 13, France. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: E41, G34, P31.     

Privatization Methods and Productivity Effects in Romanian Industrial Enterprises

Comprehensive panel data on privatization transactions and labor productivity in Romanian industrial corporations are used to describe the postprivatization ownership structure and to estimate the effect of Romania's diverse privatization policies on firm performance. The econometric results show consistently positive, highly significant effects of private ownership on labor productivity growth; the point estimates imply an increased 1.0 to 1.7% growth for a 10% rise in private shareholding. The strongest estimated impacts are associated with sales to outside blockholders; insider transfers and mass privatization are estimated to have significantly smaller, although still positive, effects on firm performance. J. Comp. Econ., December 2002, 30(4), pp. 657–682. Upjohn Institute for Employment Research, Central European University; and Budapest University of Economic Sciences, Central European University. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: G32, G34, L32, L33, P20, P31.     

Estimating total factor productivity growth in Singapore at sectoral level using data envelopment analysis

Trends in total factor productivity growth (TFPG) are examined in the ten major sectors of Singapore. Data are drawn from the Yearbook of Statistics, Singapore, (various issues) and Economic Survey of Singapore series ranging from the year 1985 to 2000. Due to the heterogeneous characteristic of each sector and non-availability of reliable input price data, this study uses a non-parametric, frontier methodology known as data envelopment analysis (DEA) to obtain the Malmquist Productivity Index at the sectoral level. The results can help Singapore identify the ‘best practice' sector and laggards in three aspects: efficiency change, technical change and TFPG, which is the qualitative productivity improvements needed for long-term economic growth. The three sets of productivity estimates are adjusted for effects of inflation and business cycles so that they are more reliable for policy implications. This exercise will provide a platform for more detailed study on the determinants of TFP growth in different sectors and at the firm level in Singapore.     

Effective Demand: Securing the Foundations

Abstract

This paper is one of three contributions to a symposium commenting on papers previously published by the other authors. Allain (Allain, O. (2009) Effective demand and short-term adjustments in the General Theory, Review of Political Economy, 21, pp. 1–22) argues that Keynes elides a distinction between aggregate demand and global expenditure that is necessary to explain the formation of price expectations by individual entrepreneurs. Allain's conclusions depend upon redefinitions of aggregate and effective demand and the consumption function. Hartwig (Hartwig, J. (2007) Keynes vs. the Post Keynesians on the principle of effective demand, European Journal of the History of Economic Thought, 14, pp. 725–739) argues that entrepreneurs must take into account the state of the economy as a whole, in order to form price expectations independently and not as a market equilibrium determined by aggregate supply and demand. This leaves demand price expectations to be determined outside the principle of effective demand. Neither author does full justice to Keynes's own treatment. We still need to agree by what mechanism individual entrepreneurs form a collective and mutually consistent state of expectation in The General Theory.     

Performance of LM-type unit root tests with trend break: A bootstrap approach

Using the bootstrap approach, we study the finite-sample properties of the Lagrange Multiplier (LM) unit root tests when level shifts are allowed under the null hypothesis. Bootstrapped critical values support the invariance property of the LM tests. Applying two LM-type tests to the Nelson–Plosser data, we find less evidence against the unit root null than that given by Zivot and Andrews [Zivot, E. and Andrews, D.W.K. (1992), “Further Evidence of the Great Crash, the Oil Price Shock and the Unit Root Hypothesis,” Journal of Business and Economic Statistics 10, 251–270.] when level shifts are allowed under the null.     

中国通货膨胀的福利成本研究

Inflation is always an important indicator to measure whether economy is stable and healthy. This paper provides a substantive survey of the research on the welfare cost of inflation, and uses the methods of consumer’s surplus and neo-classical general equilibrium models respectively to estimate the welfare cost of inflation in China. The results show that high inflation will cause huge welfare cost in China, so keeping low inflation is beneficial to the entire economic welfare of China. __________ Translated from Jingji Yanjiu 经济研究 (Economic Research Journal), 2007, (4): 30–42, 159     

Internet use and agricultural productivity in rural Vietnam

The use of the internet is growing rapidly and has become an engine for economic development. However, few studies have examined the impact of internet use on agricultural production, and the results are not yet conclusive. Employing a dataset of more than 2000 observations in rural Vietnam, our study analyses the impact of internet use on agricultural productivity using the heteroscedasticity-based instrument approach suggested by Lewbel, Journal of Business and Economic Statistics, 2012, 30, 67–80 and examines the heterogeneity and distribution of the impact using quantile regressions. Our results show that internet use has significant and positive effects on agricultural productivity. However, these effects are heterogeneous across population groups. The positive effects of internet use are stronger for households with a lower level of education, with a young and female head, and from ethnic minorities. The benefits are also found to be skewed towards the group of farmers at the bottom of the productivity distribution. Therefore, we propose facilitating the diffusion of the internet, since it not only boosts agricultural productivity, but also reduces productivity inequality. In addition, we recommend promoting rural education, supporting local markets, investing more in irrigation systems, and facilitating farm mechanisation as these factors are found to contribute to increasing agricultural productivity.