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Growth Efficiency & Finance

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, 223
Hosted By: Association of Indian Economic and Financial Studies
  • Chair: Usha Nair-Reichert, Georgia Institute of Technology

Impacts of GST Reforms on Efficiency, Growth and Redistribution of Income in India: A Dynamic CGE Analysis

Keshab Bhattarai
University of Hull


Goods and service tax (GST) introduced as a ‘good and simple tax’ on 1 July 2017 by the Modi
government is the boldest measure of tax reform so far in India. This paper uses dynamic CGE
model calibrated to the micro-consistent input-output data of the Indian economy to assess
impacts of GST on the efficiency in allocation of resources among production sectors, growth of
income and employment over time, the redistribution of income among households in India.
While GST reforms will improve specialization in productions of goods and services among the
major economic sectors of India by removing distortions in the production and distribution of
goods and services, transparency it brings in the tax system will help to maintain above seven
percent continuous growth rate in output, investment and physical capital. It also promotes
expansion in human capital and the financial system. Anti-corruption measures including recent
demonetization of large denomination notes and digitization of economic transactions along
with GST reforms will add to infrastructure including construction and expansion of
communication networks, massive electrification, development of rail, road, air and shipping
networks. By creating better opportunities for education and training for the younger
generation, health services for all continuous reforms in direct and indirect taxes will bring
speedier growth of income and employment along with more balanced distribution of income

Agglomeration Effects and Spatial Spillovers in Efficiency Analysis – An Analysis of the Indian Chemical Industry

Levent Kutlu
University of Texas-Arlington
Usha Nair-Reichert
Georgia Institute of Technology


Technical efficiency estimates using standard stochastic frontier models do not include spillover
effects, although the existence of such spillovers is well-documented in the productivity literature.
We propose a regression-based, distribution-free estimation method that is applicable to both timevarying
efficiency spatial stochastic frontier and fixed effects spatial autoregressive models, and
is relatively easy to estimate. Our empirical results from the Indian chemical industry illustrate
that ignoring spatial dependence may seriously distort estimates for efficiency rankings. The
average overall spillover effect on a firm’s efficiency is 7.20 percentage points or an average
positive spillover effect of $4.9 million in sales revenue

Weak Creditor Rights and Insider Opportunism: Evidence from an Emerging Market

Radhakrishnan Gopalan
Washington University-St. Louis
Xiumin Martin
Washington University-St. Louis
Kandarp Srinivasan
Northeastern University


We document insider opportunism in an insolvency regime that is characterized by
weak creditor rights and uses an accounting rule to determine bankruptcy eligibility.
Using a unique dataset of bankrupt firms from India, we show insiders manage earnings
downward before filing for bankruptcy via inventory and trade receivable accruals.
A battery of robustness tests confirm accrual behavior is not merely driven by poor
performance. Downward earnings management before bankruptcy filing is associated
with more payment transactions to insiders post-bankruptcy. Low pre-bankruptcy accruals
are associated with poor post-filing performance as well as greater loss of market
value on bankruptcy announcement. Our results are consistent with insiders gaming
the accounting-based entry rule to obtain bankruptcy protection and extracting private
benefits from bankrupt firms. Our study highlights the importance of strong creditor
rights for generating positive economic outcomes (La Porta et al. [1997]).

How Productive is Public Investment? Evidence from Indian Manufacturing

Santanu Chatterjee
University of Georgia
Abhinav Narayanan
Reserve Bank of India


This paper uses firm-level data on formal and informal production in the manufacturing sector in India to examine the sectoral consequences of government investment in public infrastructure. On average, public investment has a strong and positive association with the productivity of formal sector firms, with its output elasticity ranging between 0.08-0.17. By contrast, there is no systematic association between public investment and the output of the average firm in the informal sector. Using a major highway construction project in India as a natural experiment, we show that the complementarities generated by public investment accrue mainly to larger firms, leading to a crowding out of output for smaller informal firms. Consequently, this mitigates the over all benefits of public investment for the informal sector.

Dual Causality between Trade and Financial Openness: Some New Insights

Ram Upendra Das
Centre for Regional Trade-India
Anup Kumar Jha
Patliputra University
Meenakshi Rishi
Seattle University


While globalization is being revisited, the importance of trade and
financial openness have assumed greater meaning for a country’s economic
performance. It is noted that the relationships between trade liberalization and
growth as also between financial liberalization and growth have received
considerable attention in both theoretical and empirical literature. Though
these relationships have remained debatable, the broad strands of thoughts are
rather well known. The conceptual ambiguities and empirical findings have
not been able to bring about adequate clarity on the subject. The global
financial crisis of 2008 and recent disenchantment with trade have only
exacerbated the problem.Academic literature is sparse
in terms of the two-way linkages between trade openness and financial
openness. The logic of interlinkages is obvious. While trade liberalization
necessitates concomitant financial reforms and integration with the global
markets to augment trade flows; financial integration with global markets
could also engender trade flows through improving product competitiveness
due to increased availability of cheaper and secured financial capital. It is also
often argued that financial controls have moderating effects on trade
dynamism. At the same time, skeptics believe that apart from many other wellknown
risks, inherent in excessive financial sector openness is the risk of
increased volatility in trade flows.
These have all remained empirical questions. Especially, when neither
the traditional nor the new trade theories provide a clear answer to the
question of interlinkages between trade and financial liberalization or
openness, clarity on these issues have become even more significant. The
developments in the theories of finance also have not adequately dealt with
these issues. At the best, attempts have been made to undertake isolated
empirical analyses of each market (i.e. trade or finance) in terms of its
contribution to economic growth. Against this background, the proposed paper would seek answers to some of the questions that are crucial for an economic growth paradigm in the era of
global economic integration, especially in the trade and financial sectors and
aims at providing

Speculative Asset Bubbles: The Primary Drivers of “Systemic” Banking Crises in Post-war Advanced Economies

Saktinil Roy
Athabasca University


We examine the similarities between the global financial crisis of 2007-2009 and other post-war “systemic”
advanced economy banking crises by employing a panel logit model with eleven potential crisis indicators.
The run-up of real house prices is the best predictor of these crises. The predictive power of the model
improves upon the addition of real share prices. No other indicator, when added to the combination of these
two indicators, is able to improve the predictive power of the model. Hence, the primary and the most
common causes of “systemic” banking crises are speculative bubbles in asset markets and not credit booms,
a deteriorating current account balance, or any other factor. These results are different from those of all
earlier studies that consider both systemic and non-systemic banking crises as part of the same sample, do
not distinguish between crises of advanced and developing economies, or preclude the effects of asset market
bubbles altogether.
Shailendra Gajanan
University of Pittsburgh-Bradford
Debasri Mukherjee
Western Michigan University
Raja Kali
University of Arkansas
Nabamita Dutta
University of Wisconsin-La Crosse
Sushanta Mallick
Queen Mary University of London
Omer Faruk Baris
Nazarbayev University
JEL Classifications
  • O1 - Economic Development
  • Y9 - Other