Bandi Kamaiah

Economic growth, energy consumption and CO2 emissions in India: a disaggregated causal analysis

ABSTRACT This study examines the long-run and short-run causal relationships among energy consumption, real gross domestic product (GDP) and CO2 emissions using aggregate and disaggregate (sectoral) energy consumption measures utilising annual data from 1971 to 2011. The autoregressive distributed lag bounds test reveals that there is a long-run relationship among the variables concerned at both aggregate and disaggregate levels. The Toda–Yamamoto causality tests, however, reveal that the long-run as well short-run causal relationship among the variables is not uniform across sectors. The weight of evidences of the study indicates that there is short-run causality from electricity consumption to economic growth, and to CO2 emissions. The results suggest that India should take appropriate cautious steps to sustain high growth rate and at the same time to control emissions of CO2. Further, energy and environmental policies should acknowledge the sectoral differences in the relationship between energy consumption and real gross domestic product.

On the Role of the Trend and Cyclical Components in Electricity Consumption and India's Economic Growth: A Cointegration and Cofeature Approach

In this paper, the relationship between electricity consumption (LEC) and economic growth (LGDP) using Autoregressive Distributed Lag (ARDL) model and Granger causality within error correction framework in India over the period 1970–1971 to 2009–2010 are analysed. The results of these tests exhibit the existence of long-run equilibrium relationship and bilateral causality in case of India. Then, Hodrick–Prescott filter is used to decompose the data into trend and cyclical (fluctuation) components of electricity consumption and economic growth. The results of decomposed series revealed that both series are cointegrated with the strong evidence of bidirectional causality, implying that trend and cyclical components are strongly correlated with business cycles in India. From these findings, we conclude that the feedback hypothesis is applicable in case of India. Therefore, government should undertake necessary policy measures to augment the investment in power sector from existing level and more importantly the emphasis should also be given on the efficient use of electricity.

Stock prices, exchange rate and interest rate: evidence beyond symmetry

Purpose - This paper aims to examine the dynamic interactions between monetary and financial variables in Indian context. Design/methodology/approach - In this paper, we have applied a recently developed asymmetric ARDL model by Shin et al. (2014), for detecting nonlinearities focusing on the long-run and short-run asymmetries among economic variables. Findings - The results pointed towards presence of asymmetric reaction of stock prices towards changes in interest rate and exchange rate in full sample as well as in pre-crisis. However no asymmetry was found in post-crisis period. Our results further suggest that tight monetary policies appear to retard stock prices by more than easy monetary policies stimulates it. Practical implications - The findings of the study can be helpful in understanding the policy transmission mechanism through asset price channel. Originality/value - To the best of the authors’ knowledge, this is the first study that examines the interactions between monetary and financial variables in Indian context in an asymmetric framework. The findings of this study are quite interesting and are different from several existing studies in the literature.

Kuznets Inverted U Hypothesis of Income Inequality: Looking Inside the Available Economic Literature

A dynamic shift in thinking has taken place both locally as well as globally to understand the phenomenon of rising economic inequalities and accordingly find measures to correct this state of disequilibrium. However in no way the contribution of predecessors cannot be put in vain, as their work became the base to build the ongoing recent debate on the subject of economic and income inequalities. One such contribution the literature of economics received was from the seminal work of Simon Kuznets. It was the beginning to discuss the relationship between income distribution and development which later on became popular as Kuznets inverted U hypothesis or Kuznets curve. Though with respect to findings and analysis there is no common consensus to support or reject the Inverted U Hypothesis, but in its own sphere it became the base for carrying forward the research on an important aspect of the economy. In this paper we have tried mainly to show how from different perspectives the literature flowed over the period of time, to see the reliability and the efficacy of this Hypothesis. We divided the whole literature into four categories and accordingly included some important studies within each.

A Structural Vector Autoregression Model for Monetary Policy Analysis in India

A structural vector autoregression (SVAR) model is proposed for analysing the impact of monetary policy stances on real variables in the Indian economy, in the context of its continuous exposure to global factors like oil price shocks and changes in global financial health. The empirical findings based on monthly data relating to the post-liberalisation period (April 1992–December 2012) suggest that contractionary monetary policy has had a considerable adverse impact on output for a year, which appears to be consistent with the prevailing economic outlook. But the same policy measure fuels inflation further for the first eight months in contrast to its expected decline, and the rise in inflation raises the issue of a ‘price puzzle’ in the Indian context. Monetary policy-induced exchange rate appreciation hampers industrial production due to outperformance of high import demand over export competitiveness and causes an increase in the average price level. Global factors like oil price shocks leave detrimental effects on output for a long time horizon of 10–12 months and raise inflation for nearly half a year, whereas an increase in the US federal funds rate results in a temporary decline in output growth of Indian industries. JEL Classification: C01, E43, E52

Fiscal Decentralization and Economic Growth: Evidence from Indian States:

This study examines the relationship between fiscal decentralization and economic growth in the case of India using panel data for 14 non-specialized states for the period 1981–2014. The results revealed from panel cointegration, and dynamic ordinary least squares (DOLS) framework indicate that spending decentralization has a positive and significant impact on the state domestic product. On the other hand, revenue decentralization has a negative and significant effect on state domestic product. The overall measure of fiscal decentralization is found positively associated with the state income. This study is consistent with the divergence hypothesis in opposite to convergence hypothesis of Oates (1972). JEL: E62, H71, H72

Grants-in-Aid and State Domestic Product: An Empirical Analysis in India

The smooth transfer of the finances keeping in view the objectives and the requirements of the different levels of the government is an indicator of the healthy federal system. Further, it demarcates the degree of decentralization that exists within a federation. This study examines the relationship between Grants-in-Aid taken as a measure of fiscal decentralization and state domestic product in case of India using panel data for 14 non-specialized states for the period 1981–2014. The results showed that long-run equilibrium relationship exists between the two. The estimates from FMOLS, and dynamic OLS (DOLS) framework revealed that Grants-in-Aid have a positive and significant impact on the state domestic product. So from this angle, it is centralization that is growth enhancing, not decentralization. However, the study failed to detect the true nature of the causation between these two.

An Empirical Verification of Kuznets Hypothesis in India

The trajectory of output growth, more precisely economic growth and its interaction with other phenomena of an economy follows a complex path. Among many phenomena the one that has caught the world attention at large scale especially since the work of Piketty and Saez is the “Rising Inequality in Incomes”. Though for some countries like India there was a reduction in the poverty level, there seems no positive bearing on economic growth in improving income distribution for past two decades. In this paper, we have used ARDL cointegration approach to analyze the relationship between income inequality (EHII, from UTIP-UNIDO) and its various determinants from 1964 to 2007. Besides using data on Estimated Household Income Inequality (EHII), we have used income share of top 1% as an alternative measure of inequality. Our results reveal no relevance of Kuznets Hypothesis, instead, the relationship is U-shaped in nature, implying that with the initial rise in GDP per capita inequality decreases, later on as GDP increases, inequality tends to increase. Among the control variables, CPI (price level) is found to be positively and Government expenditure negatively related to inequality, while trade openness showed no significant relationship.

Co-movement Among Asian Forex Markets: Evidence from Wavelet Methods

In this article, we analyze the co-movements of nine Asian Forex markets China, India, Hong Kong, Malaysia, Indonesia, Singapore, Japan, Taiwan, Thailand, and South Korea using bilateral exchange rate against US Dollar from 03-01-2006 to 04-09-2015. We employ a wavelet-based methodology to analyze the extent to with the markets are correlated with each other across different timescales. It is found that the markets are moderately correlated at the intra-week scale and the extent of correlation increases with the increase in timescale. Near-perfect cointegration among the analyzed markets is found across annual–biannual timescale. The cross-correlation analysis shows that Singapore Forex market may lead the other Forex markets of the group across timescales from 16 to 64 days. Results indicate that there is a possibility of intervention as well as potential for portfolio diversification for the short term.

Inflation and openness in India: an asymmetric approach

This paper examines the dynamic relationship between inflation and openness from 1970 to 2014 in the Indian context. In the first of its kind, this paper investigates the relationship within a nonlinear framework by employing NARDL cointegration test due to Shin, Yu, and Greenwood Nimmo (2014). The empirical results show that there is asymmetry in the relationship between openness and inflation both in short-run as well as in long-run. However, overall a positive relation (though weak) holds between inflation and openness and hence refutes well known Romer (1993) hypothesis that inflation falls with openness. The results further showed a positive relation between inflation and other variables in the study. The overall response of inflation towards the positive and negative changes in explanatory variables differed significantly.