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  • Author: Arvind Subramanian
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: My recent research paper “India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” (hereafter “GDP paper”) and the associated op-ed in the Indian Express on June 11, 2019 have generated considerable debate. This is encouraging because serious argument and counter-argument are the basis for good policy-making. Since the issue itself is of great importance, the counter-arguments to my analysis warrant a considered response. That is the aim of this note, which is a complement to the original paper, addressing both the larger issues and some of the specific points that have been raised. The note is structured as follows. Section II describes my engagement with India’s GDP estimation when I was Chief Economic Adviser. Section III elaborates on the framework/approach underlying the GDP paper. Section IV makes explicit the key puzzle surrounding India’s growth estimates, and addresses the possible explanations for it. Section V explores the puzzle in greater detail. Section VI provides additional cross-country evidence on growth and price deflators, which support the findings of the original paper, namely that growth during 2011-16 was likely overestimated by a significant margin. Section VII addresses two broad objections to the main findings. Section VIII discusses some of the methodological critiques of the paper. Section IX offers some thoughts on the way forward.
  • Topic: Economics, Political Economy, International Development, Economic growth
  • Political Geography: South Asia, India
  • Author: Servaas Storm
  • Publication Date: 02-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Strong labor protections for ordinary workers are often portrayed as a ‘luxury developing countries cannot afford’. No study has been more influential in propagating this perversity trope in the context of the Indian economy than the QJE article of Besley and Burgess (2004). Their article provides econometric evidence that pro-worker regulation resulted in lower output, employment, investment and productivity in India’s registered manufacturing sector. This paper reviews existing critiques of Besley and Burgess (2004), which highlight conceptual and measurement errors and uncover econometric weaknesses. The paper takes a step beyond these: it reports a failure to replicate Besley and Burgess’ findings and demonstrate the nonrobustness of their results. My deconstruction is not only about the econometrics, however. I show that Besley and Burgess’ findings are not just inconsistent with their theoretical priors, but also internally contradictory and empirically implausible, taxing any person’s capacity for belief. The paper, written by two ‘useful economists’, exhibits a gratuitous empiricism in which priors trump evidence. On all counts, it fails the test of being useful to the purpose of ‘evidence-based’ public policy advice.mp Evidence and Progress Gets Stalled
  • Topic: Economics, Political Economy, Labor Issues, Inequality, Labor Policies
  • Political Geography: India, Asia
  • Author: Mark Schneider, Neelanjan Sircar
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The literature on decentralized public programs suggests that errors in the targeting of anti-poverty programs are rooted in the capture of these programs by local elites or local politicians. Consistent with the literature on moral economy in political science and experimental economics, we argue that voters in contexts of rural poverty prefer local leaders who target subsistence benefits to the poor. In a high information village context, where voters and leaders know each other, we argue that local elections lead to the selection of local leaders with pro-poor preferences over the distribution of these benefits. We show this with a novel theory of local politicians’ social preferences. We test our theory with unique data from a behavioral measure, conducted in the context of a lottery with a modest cash prize in rural India, that captures a scenario in which local leaders have full discretion and anonymity over allocation among members of their rural communities. We analyze our data using a novel estimation strategy that takes the characteristics of the pool of potential beneficiaries into account in decisions over allocation under a budget constraint. We find that local leaders have strong preferences for targeting the poor, and particularly those they believe supported them politically in the past. This article suggests that free and fair elections at the local level can powerfully encourage pro-poor targeting even in contexts of weak institutions and pervasive poverty. It also makes a fundamental contribution to research on distributive politics by challenging research in this area to demonstrate the effect of electoral strategies and other distortions on allocation relative to local leaders’ baseline distributive preferences.
  • Topic: Democratization, Economics, Politics, Political Theory, Elections
  • Political Geography: India
  • Author: Lant Pritchett, Yamini Aiyar
  • Publication Date: 06-2015
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: We combine newly created data on per student government expenditure on children in government elementary schools across India, data on per student expenditure by households on students attending private elementary schools, and the ASER measure of learning achievement of students in rural areas. The combination of these three sources allows us to compare both the "accounting cost" difference of public and private schools and also the "economic cost"—what it would take public schools, at their existing efficacy in producing learning, to achieve the learning results of the private sector. We estimate that the "accounting cost" per student in a government school in the median state in 2011/12 was Rs. 14,615 while the median child in private school cost Rs. 5,961. Hence in the typical Indian state, educating a student in government school costs more than twice as much than in private school, a gap of Rs. 7,906. Just these accounting cost gaps aggregated state by state suggests an annual excess of public over private cost of children enrolled in government schools of Rs. 50,000 crores (one crore=10 million) or 0.6 percent of GDP. But even that staggering estimate does not account for the observed learning differentials between public and private. We produce a measure of inefficiency that combines both the excess accounting cost and a money metric estimate of the cost of the inefficacy of lower learning achievement. This measure is the cost at which government schools would be predicted to reach the learning levels of the private sector. Combining the calculations of accounting cost differentials plus the cost of reaching the higher levels of learning observed in the private sector state by state (as both accounting cost differences and learning differences vary widely across states) implies that the excess cost of achieving the existing private learning levels at public sector costs is Rs. 232,000 crores (2.78% of GDP, or nearly US$50 billion). It might seem counterintuitive that the total loss to inefficiency is larger than the actual budget, but that is because the actual budget produces such low levels of learning at such high cost that when the loss from both higher expenditures and lower outputs are measured it exceeds expenditures.
  • Topic: Economics, Education, Government, Children, Youth
  • Political Geography: South Asia, India
  • Author: Lant Pritchett, Yamini Aiyar
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: There are two dominant narratives about taxation. In one, taxes are the “price we pay for a civilized society” (Oliver Wendell Holmes Jr.). In this view taxes are not a necessary evil (as in the pairing of “death and taxes” as inevitable) but a positive good: more taxes buy more “civilization.” The other view is that taxes are “tribute to Leviathan”—a pure involuntary extraction from those engaged in economic production to those who control coercive power producing no reciprocal benefit. In this view taxes are a bane of the civilized. We consider the question of taxes as price versus tribute for contemporary India.
  • Topic: Civil Society, Economics, Governance, Budget
  • Political Geography: India
  • Author: Ila Patnaik, Ajay Shah
  • Publication Date: 01-2014
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: India's financial system has long been inadequate. With an economy worth $2 trillion, the country's financial flaws are increasingly serious and outright dangerous. But fundamental change is under way. The government-backed Financial Sector Legislative Reforms Commission drafted the Indian Financial Code (IFC), a single unified law that replaces most existing financial law in India and is an important milestone in the development of state capacity. Now the government must work to adopt and implement the full code.
  • Topic: Economics, Monetary Policy, Financial Crisis, Reform
  • Political Geography: South Asia, India
  • Author: Rasika Gynedi
  • Publication Date: 04-2014
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: Asset quality in India's banks has deteriorated sharply and if not tackled promptly poses a systemic risk to the banking system—and by extension the Indian economy. A high proportion of nonperforming assets (NPAs) steadily erodes the capital base of a bank, impinging on the ability of banks to raise fresh capital and continue lending for investment activities. Indeed, the spillover impact from banking crises to the real economy is all too familiar, evinced by the subprime mortgage crisis in the United States. However, despite this risk, the issue is not garnering sufficient attention outside the banking industry.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, South Asia, India
  • Author: Anthony H. Cordesman, Abdullah Toukan
  • Publication Date: 04-2014
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: This study examines the key strategic risks that shape the stability and security of the Indian Ocean Region or IOR. This means examining risks that cut across a vast span of territory that directly affects both the global economy and some 32 nations–some within the limits of the Indian Ocean, but others that play a critical role in shaping the security of the nations in the IOR region and the security of its sea lanes and petroleum exports.
  • Topic: Development, Economics, Governance
  • Political Geography: India, Asia
  • Author: Anthony H. Cordesman
  • Publication Date: 08-2014
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: It is unclear that the United States has any current assessments and strategy to deal with either these governance or economic issues. If it does, it has provided no transparency as to what these plans are, and has failed to develop any effective public measures of the effectiveness of its civil aid programs after more than 10 years of effort, and in spite of the fact that the civil dimension of counterinsurgency efforts is at least as important as the military efforts. It is also important to note that World Bank and UN reporting show the same lack of progress in governance, economics, and human development in Pakistan as in Afghanistan.
  • Topic: Economics, Politics, World Bank
  • Political Geography: Pakistan, Afghanistan, United States, India
  • Author: Michael Clemens
  • Publication Date: 05-2014
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: Skilled workers have a rising tendency to emigrate from developing countries, raising fears that their departure harms the poor. To mitigate such harm, researchers have proposed a variety of policies designed to tax or restrict high-skill migration. Those policies have been justified as Pigovian regulations to raise efficiency by internalizing externalities, and as non-Pigovian regulations grounded in equity or ethics. This paper challenges both sets of justifications, arguing that Pigovian regulations on skilled emigration are inefficient and non-Pigovian regulations are inequitable and unethical. It concludes by discussing a different class of policy intervention that, in contrast, has the potential to raise welfare.
  • Topic: Economics, Human Rights, Human Welfare, Immigration, Monetary Policy
  • Political Geography: India