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15338 results in Economic development and growth

Page 361 of 767

  • EDE volume 22 issue 5 Cover and Front matter

  • Journal:
    Environment and Development Economics / Volume 22 / Issue 5 / October 2017
    Published online by Cambridge University Press:
    11 September 2017, pp. f1-f4
    • Article
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  • 13 - Demographic Dividend and Economic Growth in India and China

  • from Section 5 - Some Socio-political Issues in Sustaining High Growth
    • By William Joe, Population Research Centre, Institute of Economic Growth, New Delhi, Atish Kumar Dash, Centre for Economic Studies and Policies, Central University of South Bihar, Gaya, Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 391-416

  • Summary

    INTRODUCTION

    Demographic transition is a process involving the transition from a young-aged population structure (high birth and death rates) to an old-aged population structure (low birth and death rates). Such shifts in population age structure have significant developmental implications for large and populous countries like India and China. With demographic transition, there is an increase in the share of working-age population, which subsequently lowers the dependency ratio (dependents to working-age population) and allows for acceleration in economic growth. Hence, the net growth benefits derived from an increased share of working-age population due to demographic transition is referred to as the demographic dividend (Gribble and Bremner, 2012).

    The Chinese economy witnessed unparalleled economic growth during the transition phase. However, the demographic process will now contribute to the faster ageing of the Chinese population. Interestingly, India is currently in a phase where the population is relatively young, and it will witness continual decline in the share of dependents (children and elderly). This also provides an opportunity to harness the demographic dividend.

    It should be emphasized that the notion of demographic dividend is not necessarily based on the concept of labour abundance (which India and China have), but is related essentially to the share of working-age population in total population and the nature of dependency profile. An economy with lower dependency burden will present itself with higher chances of economic growth, largely because a lower dependency burden allows for higher savings and investment in physical and human capital, contributing to sustained economic growth. In fact, it is estimated that nearly one-third of the economic miracle of East Asian countries (including China) can be attributed to the demographic dividend (Bloom and Williamson, 1998; Bloom and Finley, 2009). Similarly, other cross-country studies have observed a positive association between age-structure transition and economic growth (Behrman et al., 1999; Andersson, 2001; Bloom et al., 2003; Feng and Mason, 2005; Kelley and Schmidt, 2005; Bloom et al., 2006; Choudhry and Elhorst, 2010; Wei and Hao, 2010). Also, capital deepening and prudent fiscal management can ensure sustained developmental process when the phase of demographic dividend comes to an end (Mason and Lee, 2006).

  • 6 - Global Recession and the Eurozone Debt Crisis: Impact on Exports of India and China

  • from Section 3 - The International Economic Issues and Sustaining High Growth
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 177-214

  • Summary

    INTRODUCTION

    According to Reinhart and Rogoff (2009), financial crises are essentially triggered by a collapse of investor confidence, especially in the case of highly leveraged financial markets. Economists believe that the introduction of more innovative financial instruments aimed at increasing the depth of the markets along with flexible monetary policy could contain the risk of occurrence of financial crises, as these could tackle the underlying business cycle downturns. However, the ‘subprime financial crisis’ that started in the US in 2007 could not be tamed and led to a recession in the largest economy of the world. Further, it snowballed into a global financial crisis, which had a cascading effect on financial markets around the world in 2008 and triggered the ‘Second Great Contraction’ in many economies.

    The global recession was extraordinary due to its massive coverage, extreme severity, long duration and huge repercussion effects.

    From Figure 6.1a, we observe that the gross government debt of the US was in the range of 60–70 per cent of the GDP till 2007. However, in a bid to revive the economy post the crisis, the US government resorted to fiscal expansion, which worsened the exchequer as the gross government debt soared to more than 100 per cent in 2012–2013. Current account balance (Figure 6.1b) of the US had been deteriorating till 2006. However, due to a dampening of the demand for exports in the face of a recession in the US economy, the current account balance steadily improved since 2007 and now stands at less than 3 per cent of the GDP. Unemployment rate (Figure 6.1c) peaked in the aftermath of the crisis to about 9.6 per cent in 2010, but stood at about 7 per cent in 2013. Figure 6.1d depicts the growth rate of GDP in the US and shows that the growth rate was negative during 2008–2010 and according to the latest data stands at about 2 per cent in 2013. US being the largest economy of the world, the impact of the global recession of 2008–2009 crisis was widespread with several countries of the world tumbling into a recession. This subsequently strained governments around the world as they had to overstretch in an attempt to tackle the real effects of the crisis on their economies by undertaking fiscal expansion.

  • 2 - Managing Food Price Inflation in India: Demand Projections and Supply Considerations

  • from Section 1 - Ensuring Macroeconomic Stability for Sustaining High Growth Rates
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 55-84

  • Summary

    INTRODUCTION

    Over the last several years, food price inflation has become a major problem in India. Price stability is crucial for sustainable growth as persistent inflation implies higher demand in relation to supply. Thus, there is an urgent need to understand this problem and to respond with appropriate agricultural policies to keep food prices stable if we are to reduce hunger and poverty in India. One reason for the rising food prices could be increasing demand for food, as the income levels increase with rapid economic growth. Another reason could be supply and distribution problems. Increases in international prices of foods could also be a factor. However, in India, import of cereals particularly is too low, hence food inflation is likely driven by domestic factors.

    Given this situation, this study aims to undertake a careful analysis of demand and supply of food in India. We first estimate the demand for various food categories such as cereals, pulses, fruits, vegetables, milk and milk products, meat, etc., for more precise and category-wise estimates. We then project the future demand for various food categories for the next 15 years up to 2030. Such projections could be helpful in understanding the likely forthcoming food consumption patterns in the country. Finally, we examine whether the available land resources in the country would be sufficient to meet the future food demand by investigating supply factors like total agricultural land area, yield per hectare and cultivation of various food categories. From the projected demand and supply considerations, the study also explores whether the projected future demand could be met with suitable re-allocation of agricultural land among various food categories and what other policies could be helpful in meeting the future demand. These considerations yield significant insights for formulating the appropriate future agriculture sector policies for the country.

    This chapter is organized as follows:

  • • Section 2.2 provides a brief review of the food consumption pattern in India and compares it with the other emerging and developed countries at various levels of Gross Domestic Product (GDP) per capita.

  • • Section 2.3 develops a model for the demand for various food categories, discusses the sources of data and econometric methodology used. It then discusses the main empirical results of the demand estimations for the different food categories.

  • 8 - Economic Impact of Foreign Capital Inflows in Emerging Asia

  • from Section 3 - The International Economic Issues and Sustaining High Growth
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 235-256

  • Summary

    INTRODUCTION

    The impact of Foreign Capital Inflows (FCI) on economic growth of developing countries has continued to occupy a central position in the literature dealing with development problems of our time. However, questions asked by researchers in this respect have changed with changes in the predominant form of foreign capital resources available to developing countries.

    In the context of the emerging Asian countries, foreign inflows used to be mainly in the form of foreign borrowing. However, recently foreign inflows like FDI and Foreign Portfolio Investment (FPI) have started to play a more important role. Many economists have hailed FDI as an important source of new technology and management know-how and a useful link to the world markets. On the other hand, concerns have also been voiced about whether the multinational firms and foreign portfolio investors might earn excessive profits, or adversely affect the development of domestic firms (in case of FDI) or otherwise be a source of economic exploitation of the developing countries.

    Thus, it is important that we better understand the economic role of FDI and FPI in the Asian countries. Some of the important issues of contention are as follows:

  • 1. How do FDI and FPI inflows affect domestic investment? Does FDI increases or decreases investment by local citizens?

  • 2. Does FDI and FPI inflows increase GDP growth by increasing investment, creating jobs, increasing exports, bringing new management techniques, etc., or do they lower GDP growth in the long run by taking excessive profits out of the developing countries.

    • There are a few studies which have empirically examined the effect of FDI in the Asian countries. Among these, Baharumshah and Thanoon (2006) analyzed the effect of various types of capital flows on the growth process of the East Asian countries using dynamic panel data for eight Asian countries for the period 1982–2001. Overall, they concluded that countries that are successfully attracting FDI can finance investment and grow faster than those that deter FDI. They also found that short-term capital inflows have adverse effect on the long-term, as well as short-term growth prospects, although long-term debt has positive effect on growth, its effect does somewhat disappear in the long-term. Anusorn Tamajai (2000) considered the impact of capital flows on economic growth in selected Asian countries for the period 1980–1998.

  • Preface

  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp xix-xxii

  • Summary

    India, one of the top five economies worldwide, is a young country. It has more than 65 per cent of its 1.3 billion population below 35 years of age. To realise the potential of this demographic dividend, the Indian economy must provide facilities for education, health and skill development to the population, especially the large sections of society that are poor, or who have fewer amenities. But India is a home to 18 per cent of the world's population and 30 per cent of it is poor – who live on less than $2 a day. Agriculture contributes only 14 per cent to the GDP, but employs more than 50 per cent of the population. There is much disguised unemployment, under-employment and inequality in the Indian economy. Reducing poverty and inequality is a massive challenge for policymakers and it requires a multi-pronged approach. First, the government must make enough investment in education, health, sanitation, and other physical and social infrastructure to improve the standard of living for a billion people. This requires resources from the exchequer. Second, the government must enable people to shift to the secondary and tertiary sectors from agriculture, where marginal productivity of labour is low or negligible, after creating a productive labour force through good education, skill development, training, and healthcare facilities. This requires improvement of investment ratios across sectors, particularly in manufacturing, for productivity-led growth and job creation. Third and the most important, it must create opportunities for the existing unemployed and under-employed and for the new labour force. Job creation must be the government's top priority. A million people join the workforce every month; in 2015, a dismal 1,35,000 jobs were created, according to the Employment Labour Bureau. Achieving and sustaining high growth and creating employment is an urgent necessity.

    In the early 1990s, economic reforms began in India. Then predominantly agricultural, the economy is now service-led. But given the strong industry-service linkage, the service sector – which is not labour-intensive – cannot sustain itself without a vibrant, growing industrial sector or grow by depending only on the world market. Moreover, one cannot depend on agriculture, as half the labour force does, to improve the standard of living. To remain on a high-growth trajectory, there must be an increase in investment in industry and, in particular, manufacturing, which generates jobs for millions of semi-skilled, literate labourers.

  • 11 - Elementary Education in India: A Study of Accessibility and Quality

  • from Section 4 - Infrastructure Bottlenecks to Sustaining High Growth
    • By Indrajit Bairagya, Institute for Social and Economic Change, Bangalore, Radhika Saraf, Centre for Policy Research and the Institute for Social and Economic Change
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 315-348

  • Summary

    INTRODUCTION

    Across the literature on growth, the shift from agricultural to manufacturing to tertiary, i.e., services is the trajectory to be followed for sustainable growth, in the process of which, the population also correspondingly shifts from rural to urban areas to work in the more advanced sectors. However, a large enough and robust manufacturing and service base industry requires skilled labour such that its efficiency is large enough to ensure profit-making. It is for this reason that elementary education in India holds relevance, for education not only aids the shift from agriculture to manufacturing and services but also increases labour productivity, which is necessary for sustainable growth.

    Moreover, contemporary capitalism, along with its rhetoric of globalization, dictates that developing countries pursue a path of capitalist development in order to integrate into the world economic order. The imperatives of such a process problematize not only state-society relations but also the rationale and scope of inclusive growth and welfare of the developing countries. Against such a backdrop of neo-liberalism and post-developmentalism, the role of the state in economic growth and development becomes important, not least because of the good governance and information asymmetry discourse of the post-Washington Consensus; rather, the deep fissures and disparities that mark the growth process necessitate conscious decision-making towards protecting the marginalized, who are also more often than not, victims of globalization and vulnerabilities that are associated with the growth process. It is in this context that universal good quality education holds particular relevance in that it provides the poor an opportunity for social mobility and the chance to reproduce oneself.

    Good quality elementary education is necessary not only because of the concern for equity; the vagaries of globalization, increasing class differentiation in the countryside, low productivity in agriculture and dearth of non-farming employment opportunities in rural areas, coupled with the fact that a majority of unskilled labour operates within the informal sector with little or no social security, has made the growth process alienated from the majority of the population who live and work in rural India. It is imperative for sustainable growth that the majority of the population is included in the growth process and can not only reap benefits from it, but also aid it directly through work and indirectly through consumption.

  • 4 - China's Manufacturing Success: Lessons for India

  • from Section 2 - Promoting Industrial Development for Sustaining High Growth Rates
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 111-146

  • Summary

    Introduction

    In China, privatization began to gather steam after 1992 and the private sector surpassed the state sector in share of GDP for the first time in the late 1990s. China's leaders saw great potential in large-scale, low-cost manufacturing and economic policy making centred on forming Special Economic Zones (SEZ) and giving foreign firms ‘super-national’ treatment. In addition, China manually pegged its currency to the dollar at an undervalued rate to provide its exports an edge. In short, it put in place a range of strategic policies to enable its ascent in the world economy and became the indomitable manufacturing exporter to the world with a massive chest of foreign exchange in a matter of three decades. China accounted for 22.4 per cent of global manufacturing in 2012, whereas India's share of global manufacturing stood at a little over 2 per cent. The present government in India, however, has unleashed a set of reforms targeted at boosting the manufacturing sector and encouraging exports after years of neglect in what Sanyal (2014) calls ‘India's East Asian dream’. For India to achieve its stated goals of reviving its manufacturing sector and providing jobs to the tens of millions of its unemployed youth, it must design policies targeted at low-cost mass manufacturing and will need massive investment, including major contributions from foreign investors. There are crucial lessons for India in China's success in the manufacturing sector.

    This chapter looks at the policies that drove China's manufacturing success and draws lessons for India. It starts by looking at the initial stages of reforms in China, which focused on the agricultural sector, followed by the turnaround in the economy achieved by town and village enterprises. We then look at big bang reforms undertaken by China, mainly in the form of SEZ and Foreign Direct Investment (FDI) policies and to a lesser extent China's exchange rate policy. It also looks at the role of infrastructure development and labour reforms. The objective of this chapter is a comparative analysis of China's and India's manufacturing sector; therefore, it discusses every aspect of the Chinese economic policy relevant to its manufacturing success and compares it to the Indian policy context. The most important comparisons are drawn in policies relating to SEZs, FDI, infrastructure, and labour.

  • 5 - Sustaining India's Manufacturing Sector Growth in the Face of Increasing Competition from Chinese Imports

  • from Section 2 - Promoting Industrial Development for Sustaining High Growth Rates
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 147-174

  • Summary

    INTRODUCTION

    The context

    The prime goal of the National Manufacturing Policy, 2011, is to raise the share of manufacturing in India's GDP by about 10 percentage points between 2012 and 2022, making manufacturing GDP reach about a quarter of the aggregate GDP by 2022. For fulfilling this objective, a rapid growth in the output of the Indian manufacturing in the coming years at a rate of about 10 per cent or higher per year is necessary. An important initiative taken by the government is the ‘Make in India’ programme, which was launched in September 2014. The programme is directed at promoting a manufacturing-led economic growth in India. It focuses on policy initiatives to develop infrastructure, improve ‘ease of doing business’ and undertake reforms of the currently existing labour regulations to impart greater flexibility in the industrial labour markets. Some other associated aspects of the programme are the initiatives towards protection of intellectual property rights and development of skills among the Indian workers.

    The current policy thrust for attaining accelerated growth of Indian manufacturing seems to be mostly directed at the supply-side constraints on growth. Arguably, Indian manufacturing is facing demand-side problems also and these problems may pose a serious challenge to the sustenance of a high rate of growth in manufacturing. This chapter deals with one demand-side problem, namely, increasing penetration of Chinese imports into markets for industrial products in India. It is needless to say that this factor can potentially have a serious adverse effect on the growth performance of Indian manufacturing, and therefore, needs a careful analysis.

    Banga (2014) has argued that Indian manufacturing has been experiencing some degree of ‘hollowing-out’, manifested in a downward trend in the ratio of value added to output in the manufacturing sector. She ascribes this phenomenon to the intense import competition faced by the Indian manufacturing firms thanks to India's import liberalization, particularly from imports from China. She notes that a downward trend in value added share in the output of manufacturing, as observed, could arise from increasing cost of energy input in manufacturing. But, in the case of India, this does not apply as there has been a clear downward trend in energy cost as a ratio to the manufacturing sector output. Thus, this factor does not explain the observed fall in the share of the value added in the output in manufacturing.

  • 3 - Economic Complexity as a Determinant of Industrialization of Countries: The Case of India

  • from Section 2 - Promoting Industrial Development for Sustaining High Growth Rates
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 87-110

  • Summary

    INTRODUCTION

    The industrialization of a country is an impressive process, deeply changing the population and the institutions of the country while new and old resources are tapped to achieve growth. During this transition, the growth rate of the economy is much higher than the global average and much higher than the past and future growth rates of that country.

    It is, however, a transition, and as such, is limited in time. When the industrialization process has touched all the sectors, when most of the population is educated and near full employment and when all the scale economies have been fulfilled, the process loses its revolutionary power and the new society now sits among the developed countries.

    Two questions have haunted economists since the beginning of the discipline, since Adam Smith and Max Weber. The first question concerns the drivers of this sudden spurt of growth: how can an entire society change dramatically in fifty years after being static for thousands of years? Moreover, why is this process suddenly interrupted after catching-up with the other developed countries? There are many competing answers to this part of the puzzle, the most basic being the poverty trap due to multiple equilibriums (Solow, 1956): the phenomenon is sudden because there is a barrier – a given level of wealth needs to be reached to start a quick transition to a different equilibrium. There are several alternative explanations, the most notable being the relation between increasing returns and demand, as in Rosenstein-Rodan (1943) and – more formally – in Murphy et al. (1988), in which the barrier to overcome is a minimum internal demand which inhibits scaling returns in manufacturing.

    The second question is about the heterogeneity of the process among countries. England experienced its Industrial Revolution in the second half of the eighteenth century, followed by other Western countries. In the nineteenth century, the United States became industrialized too, other countries followed in the twentieth century, while others did not. What prevented countries lagging behind from moving towards prosperity? There are many alternative explanations, ranging from cultural (McCloskey, 2006; Weber et al., 2002) to geographic (Diamond and Ordunio, 1997) and even biological (Ashraf and Galor, 2011). Another explanation is political: to achieve growth the population has to be empowered through inclusive political institutions, leading to more inclusive economic institutions and widespread prosperity (Acemoglu et al., 2005).

  • 12 - Education and Economic Growth: A Comparative Study of China and India

  • from Section 4 - Infrastructure Bottlenecks to Sustaining High Growth
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 349-388

  • Summary

    Introduction

    The initial conditions in 1950 of the newly formed People's Republic of China (PRC) and newly independent India – the world's two most populous economies – were similar: low per capita income, high levels of poverty and low education. However, they followed dramatically different political systems – a highly centralized one party system with first a command and then a socialist market economic structure in China and a multi-party democratic parliamentary political system with a highly regulated capitalist economic structure in India. China has attained a miracle by sustaining high growth rates and attaining the top rank in an international student assessment test. China sustained high growth rates, close to 10 percent, over the past 35 years. In recent years, Shanghai-China ranked top among the 74 countries of the OECD and 10 other countries in the PISA tests in science, mathematics, and reading for 15-year-old schoolchildren. India has not done as well. Except for a brief spurt of high growth in the 1990s and early 2000s, India's growth rates have been around 5 per cent during the period. In the PISA tests in 2009, India ranked next to last, just above Kyrgyzstan and in the Trends in International Mathematics and Science Study (TIMSS) test among 51 countries in 2005, India ranked near the bottom (Pritchett (2012) for PISA results and Das and Zajonc (2010) for TIMSS results). No country in the world achieved Newly Industrialized Country (NIC) status without providing its labour force a high-quality education or at least providing basic education first and later vocational secondary education and a high-quality tertiary education, at an internationally comparable standard. With high income growth over the past three decades, China reduced poverty by around 500 million people (World Bank, 2013). Like China, India would like to achieve persistent high economic growth and eliminate poverty.

    What leads to sustained high economic growth? It has been argued in the literature that important sources of growth are globalization – along the lines of free international trade and capital movement – and policies that foster infrastructure, market competition, R&D and human capital.

  • 7 - Changing Global Trade Regime and Emergence of Mega FTAs: Strategy for India's External Sector Sustainability

  • from Section 3 - The International Economic Issues and Sustaining High Growth
    • By Geethanjali Nataraj, Indian Institute of Public Administration (IIPA), New Delhi, Abhirup Bhunia, Senior Consultant at a development consulting firm in New Delhi, Garima Sahdev, International Trade and Investment Law. She is a former researcher at Observer Research Foundation
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 215-234

  • Summary

    INTRODUCTION

    The relationship between trade and economic growth remains ambiguous and inconclusive (see for instance, Baldwin, 2003; Dollar and Kraay, 2004; for two opposing sets of results and inferences), but it is common knowledge that when countries enter into an Free Trade Agreement (FTA), trade is diverted away from the non-FTA members. What is also established is that FTAs per se have a strong positive impact on the economic growth of member states (Sohn and Lee, 2010). In an era of globalization, FTAs have grown in number in the past two decades. In the backdrop of the stalled Doha development round and an ensuing question mark on the future of multilateralism, there has been a proliferation of Regional Trade Agreements (RTAs). The World Trade Organization (WTO) notifies that as of 1 July 2016, 423 RTAs were in force. In short, free trade and agreements governing free trade are far from new in an era of internationalism.

    As the WTO regime continued to drift towards irrelevance with the stalled Doha round, countries started embarking upon regional and bilateral arrangements for trade liberalization. Although the trade facilitation deal has been signed after much delay and confusion, the US-inspired Trans Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) and the China-led Regional Comprehensive Economic Partnership (RCEP) continue to cast doubts on the future of multilateral trading systems like the WTO. India on its part has of late been engaging more and more with regional and bilateral arrangements, which allow economic integration with other countries at more favourable terms – particularly, when the negotiating parties come from comparable levels of economic development. Currently, over 25 such agreements are either operational or at various stages of negotiations by the Ministry of Commerce and Trade. Since the liberalization process began in 1991, India has integrated itself into the global economy in steps. Barriers to trade have fallen and so have limits on FDI. Tariffs have gone down from around 79 per cent to 16 per cent over the past one and a half decades, much of it between 1990 and 1997 (Gasiorek et al., 2007). Exports have been promoted by various policy measures. As a result, India's share of world trade rose in the past two decades to 2.07 per cent in 2013, up from 1.31 per cent seven years earlier.

  • 9 - FDI Outflows from the BRIC Countries: Impact on Domestic Capital Formation

  • from Section 3 - The International Economic Issues and Sustaining High Growth
  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 257-292

  • Summary

    INTRODUCTION

    The phenomenon of rising FDI outflows has raised serious policy concerns about its effects on the domestic investment in the countries of origin of such FDI flows. A review of the available theoretical and empirical literature on the association between domestic investment and Outward FDI (OFDI) provides two distinct economic views regarding the effect of OFDI on the home country investment – substitutability and complementarity, each of which has its own implications on domestic economic growth and employment. Policy concerns become especially pronounced when OFDI tends to substitute those domestic investments that could have sustained and enhanced home productivity. The argument is that if overseas relocation of domestic production takes place because of reduced investment opportunities at home, then such OFDI activities may not only shift some of the production activities from home to foreign destinations, but also possibly threaten the availability of scarce financial resources at home by allocating resources abroad (Stevens and Lipsey, 1992). This has the potential to reduce the domestic productivity of home firms in the long run by lowering their rate of accumulation of physical capital, thereby impairing their domestic investment. This in turn affects the long run rate of economic growth and employment of the country (Al-Sadig, 2013). On the other hand, it is also recognized that OFDI can actually be instrumental in fostering positive linkages with the country of origin through the employment of domestic inputs and promotion of domestic investment in the manufacturing and service (information technology, management, etc.,) sectors while producing outputs in the host country. Such an increase in the OFDI activities by home country multinationals may promote higher domestic investment and output, leading to long run economic growth (Desai et al., 2005a).

    In view of the controversies existing in the relevant theoretical and empirical literature about the potential impact of OFDI on domestic investment, the study of the direction of causality between these two macroeconomic variables become theoretically important and practically relevant because of the inherent growth and developmental implications of OFDI for the home countries and also for the rest of the world.

  • Introduction

  • Edited by Pradeep Agrawal, Institute of Economic Growth, Delhi
  • Book:
    Sustaining High Growth in India
    Published online:
    08 February 2018
    Print publication:
    06 September 2017, pp 1-24

  • Summary

    India was able to achieve a growth rate of over 8 per cent during 2000–2011, and even handled the global financial crisis of 2008–2009 with only a short lived one year dip in its growth rate. It seemed that India too could repeat the Chinese style economic miracle and modernize its economy to regain its ancient glory as a leading nation of the world. However, over 2011–2014, its economy witnessed significant deceleration, as reflected in the sharp fall in the growth rate – from 9 per cent in 2010 to the range of 5-6 per cent over 2013 and 2014 and many observers even began to write off India's high growth story. Given the importance of sustaining high growth rates in India, this book was conceptualized early in 2014 as a sequel to Reviving Growth in India (also edited by Pradeep Agrawal and published by Cambridge University Press, 2015). A workshop was organized at the Institute of Economic Growth, Delhi, India on 19 and 20 August 2014 which brought together leading economists from India, Europe and the United States to present their research findings about various aspects of sustaining high growth rates in India and to suggest policies to achieve it. The studies were subsequently subjected to careful deliberations and revisions. This book is a compilation of such selected studies.

    For India, the importance of sustaining high growth rates for the next 25–30 years cannot be overemphasized. India will still be enjoying the fruits of demographic dividend for the next 25–30 years, and it will be a particularly opportune time to strongly focus on sustaining high growth, because we will have the benefit of the demographic support in the form of a young working age population. If we fail to achieve high growth, there will be serious consequences, in the form of high level of poverty and a large and young population looking for work and probably not finding enough of it, which can lead to social and political unrest and other problems. But, if we use this demographic dividend and good economic policies to achieve a growth rate of 8–9 per cent over the next 25–30 years, we can achieve per capita income over $12,000 (in purchasing power parity (PPP) terms this will be about $40,000, comparable to the current per capita income in Europe and the United States).

Page 361 of 767