Tarlok Singh

Does International Trade Cause Economic Growth? A Survey

This study surveys the literature on the relationship between international trade and economic growth, and succinctly reviews the role of GATT/WTO in fostering free trade. Most studies support the gains of trade and recognise the substantive contributions of GATT/WTO in fostering free trade; the evidence is, however, not ubiquitously unambiguous. The macroeconomic evidence provides a dominant support for the positive and significant effects of trade on output and growth, while the microeconomic evidence lends larger support to the exogenous effects of productivity on trade, as compared to the effects of trade on productivity. The GATT/WTO remains surrounded by barriers to trade and avowed preferences for preferential trade agreements. The strength of the argument for the gains of trade needs to be evaluated in juxtaposition with several methodological and measurement issues that surround the trade-growth empirics. Most studies focus on partial equilibrium analysis of trade policy and ignore the general equilibrium aspects of macroeconomic policy. It is difficult to disentangle the effects of trade policies from those of other macroeconomic policies and unequivocally interpret the observed correlations between trade policies and economic growth. Trade is one of the several catalysts of productivity and growth and hence its contribution is contingent on its weight in economic activity.

Financial development and economic growth nexus: a time-series evidence from India

This study examines the relationship between financial development and economic growth in India for the period 1951–52 to 1995–96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969). The Johansen (1991) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980), and the Toda and Yamamoto (1995) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.

India's Trade Balance: The Role of Income and Exchange Rates

This study estimates the balance of trade model on Indian data from 1960 to 1995 using a reduced-form specification similar to Rose [J. Int. Economics, 30 (1991) 301]. The results show that the real exchange rate (trade weighted) and domestic income play a significant, while the world income plays an insignificant or a less significant role in affecting the balance of trade in India. The trade effects of real exchange rate are different from those of nominal exchange rate. The study suggests the need to monitor the real rather than nominal exchange rate, and in this major focus is required on weighted and more specifically the trade weighted real effective exchange rate. Besides, the devaluation-based adjustment policies need to be supplemented by stabilisation policies to ensure domestic price stability and achieve the desired effects of nominal exchange rate changes (devaluation) on the balance of trade.

Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey

This study surveys the intertemporal optimizing models of trade and current account balance that were developed, calibrated and empirically tested since they came into vogue in the 1980s. The implications of these models often differ from those of static and dynamic conventional non-optimizing models. The literature on optimizing models has not only grown reasonably fast, but has also witnessed significant advances in methodology, and these models have culminated into a distinct strand of new open-economy macroeconomics. The studies conducted until the late 1980s have used deterministic perfect-foresight models, while several studies conducted since the 1990s relax the perfect-foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents. The future research needs to explore the possibility of tracing any preferred specification of household preferences, model the effect of time-varying discount factor on household utility function and intertemporal budget constraint, examine the role of costs in international trade, place a parallel emphasis on the empirical verifications of theoretical propositions, examine the relative performance of optimizing vis-a-vis non-optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts. Copyright 2007 The Author Journal compilation

Effects of exports on productivity and growth in India: an industry–based analysis

This study analyses the effects of exports on the level of output per capita using the panel estimates of an extended version of the Mankiw, Romer and Weil (The Quarterly Journal of Economics, CVII, 407-37, 1992) model, and on the total factor productivity using the time series estimators. The analysis is carried out for ten industries in the manufacturing sector in India. The results do not provide any evidence of convergence, and instead support the contrary evidence of divergence among industries. The exports do not induce convergence and instead seem to accentuate the process of divergence among industries. The study provides some evidence for the significant effects of exports on the level of output per capita and TFP in the manufacturing sector. The effects of exports on TFP are significant in half of the sample industries, while in the remaining half these are statistically insignificant.

International Trade and Economic Growth Nexus in Australia: A Robust Evidence from Time‐Series Estimators

This study examines the effects of international trade on output and tests the null of Granger non-causality between trade and economic growth in Australia. The single-equation IV-GMM, DOLS, FMOLS and NLLS and the system-based ML estimates consistently support the positive and significant long-run effects of exports and investment on output. The effects of imports are consistently negative across all the estimates. The OLSEG, RLS and ARDL-ECM estimates provide a mixed and weak and that overparameterised level-VAR estimates no support for the effects of trade on output. The estimates of the model with structural breaks provide a dominant support for the cointegrating relationship among variables. In conclusion, the evidence supporting the positive and significant long-run effects overwhelms the evidence providing a mixed, weak or no support for the effects of trade on output. The results of the study can be inductively generalised to mimic the findings of the literature at large and to suggest that a part of the inconclusiveness over the gains of trade could analogously be ascribed to the use of different methodologies and test statistics across studies. The results support the acceleration of exports and investment to foster the higher levels of output and economic growth.

Services sector and economic growth in India

This study examines the long-run equilibrium and short-run dynamic relationship between services sector and Gross Domestic Product (GDP) and between services and nonservices sectors in India. The model is estimated using the optimal single-equation and the maximum-likelihood system estimators. All the estimators consistently suggest the cointegrating relationship between services sector and GDP as well as between services and nonservices sectors. The estimates of long-run elasticity parameters are statistically significant and dimensionally consistent across the estimators. The conventional Cumulative Sum (CUSUM) and the new CUSUM and Moving Sum (MOSUM) tests suggest the stability of the equilibrium residuals and reinforce the cointegrating relationship between the model series. The error correction model provides some support for unidirectional Granger-causality from services sector to GDP. The impulse response and variance decomposition analyses instead suggest the bidirectional causality between services sector and GDP and between services and nonservices sectors. The stable growth of services sector is essentially crucial to absorb the adverse effects of exogenous weather shocks in agriculture and industry and provide resilience to the economy.

On the GARCH estimates of exchange rate volatility in India

The study estimates the generalized autoregressive conditional heteroskedasticity (GARCH) model for a comprehensive set of both weighted (export and trade) as well as unweighted (official and black market) real exchange rate series in India. The study finds the evidence of dimensionally weak and statistically insignificant autoregressive conditional heteroskedasticity (ARCH) effects as compared to GARCH effects in almost all the exchange rate series. The estimates of GARCH model are sensitive to the measure of exchange rate used. Besides, the GARCH effects remain invariant to the choice of sample period, and this evidence points towards the regime neutrality of exchange rate volatility in India.

Does public capital crowd-out or crowd-in private capital in India?

This study examines the long-run effects of public capital on private capital and tests the null of Granger non-causality between public and private capital in India. Both single-equation and system estimates of the model consistently suggest the long-run crowding-in effects of public capital. The error-correction as well as over-parameterized level-VAR models consistently suggest uni-directional Granger-causality from public to private capital. The support for the significant crowding-in effects of public capital has important implications for the formulation of long-term growth and development strategies. It underlines the need to accelerate public infrastructure to induce the distortions-free and market-driven increases in private capital and to attract the inflow of foreign direct investment. The inflows of foreign capital have witnessed perceptible increases since the beginning of the 1990s. The geographical and sectoral distributions of FDI inflows remain asymmetric and skewed in favor of the select regions and the services industries. The services-sector-led growth needs to be accompanied by the commensurate performance of the goods-producing, agricultural and industrial, sectors so as to sustain the escalated trajectory of economic growth.

Sustainability of current account deficits in India: an intertemporal perspective

This study examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint (IBC) in India. The long-run model is estimated on annual data for the period 1950–1951 to 2009–2010. The optimal single-equation and maximum-likelihood (ML) system estimates of the model provide a consistent support for the long-run relationship between imports and exports. The OLSGH estimates provide no support and that ML system estimates a consistent support for cointegration in both the models estimated with one and two structural breaks in level. The new cointegration breakdown tests generally suggest that the cointegration prevails from 1951 to 2010. The evidence supporting the cointegration between imports and exports overwhelms the evidence providing a mixed or no support for cointegration. The estimates of slope parameter above zero and the dominant support for cointegration between imports and exports vindicate the validity of IBC and the sustainability of CADs. The short-term management strategies need to be accompanied by long-term improvements in productivity to reduce inflation, lever up the competitiveness of exports and ensure the sustainability of the external value of domestic currency.