Abhay Gupta > Publications & Recent Works
My job market papers :
- Primary Paper
Pre-reform conditions, Intermediate inputs and Distortions: Solving the Indian Growth Puzzle
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Indian Growth Puzzle Paper - Abstract:
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This paper answers the puzzling questions that why under the similar set of economic conditions service sector in India grew while manufacturing could not and how economic reforms in 1990s accelerated the productivity growth. The paper provides a very innovative and convincing explanation. Two subtle but important distortion-inefficiency mechanisms, which work through distorting the intermediate input allocation, are identified. I find that interaction of policies of quantitative restrictions and inflexible labor laws distorted the intermediate input usage compared to the labor. Moreover, combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered the productivity growth further.
Using panel data on Indian industries, I also find underutilization of materials compared to labor until recently. Because of these economic conditions during 70s and 80s, firms were under-substituting the materials in response to price changes rather than choosing optimal allocation. As a result, productivity estimates are negatively related to labor growth and positively related to materials growth. Real wages and labor productivity are negatively related to materials inflation and this relationship breaks down after the capital market reforms in 1990s. Since these distortion-inefficiency channels work through intermediate inputs, service sector productivity was not affected as adversely. After 1990s, firms have started over-substituting materials and capital relative to labor which can explain the jobless growth in Indian manufacturing.
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- Secondary Paper
Looking beyond the methods: Productivity Estimates and Growth Trends in Indian Manufacturing
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Manufacturing Estimates Paper - Abstract:
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Studies on growth analysis of Indian manufacturing, which was the focus of earlier five-year plans, have been unable to provide consistent estimates. I address this issue in this paper by calculating exhaustive set of productivity estimates for the period 1970-2003 using production function, index number and envelopment analysis methods with Annual Survey of Industries data. TFP growth rate average is 1.1% for both gross output based and net value added based measures. In gross output production the share of materials is 0.6, much larger than the capital and the labor shares. Share of capital is constantly increasing. For the period just after the reforms (91-97), input growth jumps but TFP growth is negative. But after 98, the trend reverses and output grows despite negative input growth because of large positive TFP growth. Aggregated TFP growth rate also follows the same pattern. There are no significant differences in TFP growth rates among different-sized firms. After the reforms, TFP growth increases substantially in the public corporations. Productivity transition seems to be random across different (3-digit NIC code) industries. Industries with focus towards services experienced higher productivity growth than others. These results show that the lack of productivity growth was the reason for unimpressive performance of Indian manufacturing earlier.
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My PhD thesis is an empirical study of Indian macroeconomic growth.
Analysis of Economic Growth in a Developing Country: Identifying and Estimating Sources.
Thesis Abstract
Submitted and Presented Papers
Here are some of the completed papers I have presented in conferernces and/or submitted for publication consideration to journals.
- Indian Economy - TFP or Factor Accumulation: A Comprehensive Growth Accounting Exercise
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India TFP vs Factor Accumulation Paper - Abstract:
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Constructing data series from various sources, I do comprehensive growth accounting for the Indian Economy. Without accounting for human capital, total factor productivity differences over time accounts for 48% to 69% of output variation. TFP growth accounts for 35% to 70% of the total GDP growth between 1960 and 2004 depending on measure of human capital. Even after using the Mincer wage regression coefficients, TFP growth still remains significant in explaining the output growth.
Starting from a modest rate in 60s Productivity growth dipped and became negative in 70s. This productivity growth rate started accelerating in 80s (much before the reform-period of early 90s) and is estimated between 3% and 4.5% in 2000s. Variance decomposition of growth rates show negative relation because input and output growth accelerated in different periods. Capital-Output ratio seems to transition from one-steady state to another. Capital-per-Worker has reached a constant rate of growth.
Accounting estimates, decompositions and period-wise trends point toward Indian growth being triggered by overall efficiency improvement (TFP) rather than input accumulation growth.
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- Comparing Bank Lending Channel in India and Pakistan
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Bank Lending Channel Paper - Abstract:
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This paper investigates the presence and significance of bank lending channel of the monetary policy transmission in India and Pakistan using the Structural Vector Auto Regression (SVAR) approach. The results of econometric analysis support the presence of a significant bank lending channel in these countries. Changes in the monetary policy instruments affect the credit variable (private sector claims) which in turn transmits the shocks to the real side of the economy, i.e. output and prices. The output returns back to initial level in long run, while the effect of monetary policy changes on prices are persistent.
I also find that compared to the bank lending in other developing countries the channel in these countries is different and more vital. Another finding is that apart from interest rates, money also seems to play an important role in these economies and its shocks are significantly transmitted to the real macroeconomic activities through changes in the credit variable.
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- Measuring Quality Change due to Technological Externality in Multi-Feature Service Bundles
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Services Quality Measurement Paper - Abstract:
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Technological innovation, externalities and network effects keep shifting the preference parameters in cellular telecommunication service sector. The paper suggests a framework to model these changes.It notes two channels that affect the service prices (in possibly opposite ways). In each corresponding period, consumer with lower reservation prices are shopping for the services. But these reservation prices are going up due to complementarity/ network effects.
Under some reasonable assumptions on industry and cost structure, market data can be used to identify these changes. A price index is suggested that decomposes service bundle price changes into the change in price for same-quality of service and change in quality of the service bundle. Some interesting properties of these indexes are also discussed.
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- Technological Progress on Consumption side: Consolidation and Prevalence of Complements
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Consumption Innovation Paper - Abstract:
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This paper discusses the effect of technological innovation on consumption side. Apart from Quality effect (improvement in the quality of service or reduction in constant-quality price), there is another ”Consolidation effect”. This takes form of more features (which can be enjoyed together) being included in the same service. This effect is driven by the Time-constraint in form of technological limit on consumption per unit of time. The effect is stronger if features being bundled together are complementary to each other.
Another aspect is shown by offering an alternative explanation of Engel’s Law. If complementarity of a sector is affected by technological externalities, the income share spent on that sector changes. The direction of movement depends whether the tech progress has developed ”enhancing” (positive) or ”impeding” (negative) complements. Service sector has more of these enhancing complements and hence income share spent on service sector has gone up.
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These are also available from my author page at IDEAS and SSRN
Also see my Research Interests/ Working Papers and detailed CV
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