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Issues in Economic Development

Paper Session

Monday, Jan. 4, 2021 3:45 PM - 5:45 PM (EST)

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

A Political Economy Model of the Ganges Pollution Cleanup Problem

Amit Batabyal
Rochester Institute of Technology
Hamid Beladi
University of Texas-San Antonio


We study pollution cleanup in the Ganges in Varanasi, India. Voters elect politicians and
elected politicians decide how much pollution to clean up. Between time periods, there is an
election. Politicians are sincere or insincere. The marginal cost of public funds ߞ measures how
efficiently elected politicians transform tax receipts into pollution cleanup. Voters have identical
per period utility functions. We ascertain the equilibrium outcome and per period voter welfare.
Second, we show that an increase in ߞ reduces the equilibrium pollution cleanup and voter
welfare. Third, an insincere politician to can delay the revelation of his insincerity. We show that
a critical value of ߞ ,ߞ ,∗exists such that the insincere incumbent separates and loses the election if
and only if ߞ൐ߞ ∗and that he pools and is re-elected otherwise. Finally, we note that an increase
in ߞ can raise voter welfare when politicians are more likely to be insincere.

Founding Family Heritage, Social Background and Risk Taking in Family Firms

Rama Seth
Copenhagen Business School
Ankit Singhal
Shiv Nadar University
Vishwanath S. R.
Shiv Nadar University


This paper analyzes the relation between founding family’s heritage, social background and total
firm risk using a sample of Indian firms from 2001 to 2015. We show that family firms have
lower equity, cash flow and earnings volatility. This is particularly true of firms managed by
older business families. There is some evidence that firms managed by family CEOs belonging
to a business community are riskier. We document a curvilinear relation between family
ownership and total firm risk. This non-linear relation can be explained by the non-linearity in
the extent of diversification, leverage, cash flow volatility and cash holdings at different levels of
family ownership. Our results are generally robust to various tests for endogeneity, including
instrumental variables regression, propensity score matching and firm fixed effects.

Arable Land in Antiquity Explains Modern Gender Inequality

Chandan Kumar Jha
Le Moyne College
Sudipta Sarangi
Virginia Tech


This paper argues that the availability of arable land in antiquity created gender norms that continue to affect current gender inequality. We show that countries with greater ancestral arable land have lower levels of gender inequality, better female reproductive health outcomes, and greater female labor force participation. Using more than 80,000 individual-level observations from over 70 countries, we find that it is positively associated with attitudes regarding women’s rights and abilities. We show that the primary mechanism driving this relationship is the shaping of norms that promote female labor force participation.

Estimating Poverty in India without Expenditure Data: A Survey-to-Survey Imputation Approach

David Newhouse
World Bank
Pallavi Vyas
Ahmedabad University


This paper applies an innovative method to estimate poverty in India in the absence of recent
expenditure data. The method utilizes expenditure data from 2004-05, 2009-10, and 2011-
12 to impute household expenditure into a survey of durable goods expenditure conducted
in 2014-15. At the $1.90 per day international poverty line, the preferred model predicts a
2014-15 headcount poverty rate of 10.4 percent in urban areas and 13.8 percent in rural areas,
implying a poverty rate of 12.7 percent nationally. The model’s predictions are comparable
to the World Bank’s current adjustment method for the rural areas but imply a slower rate of
poverty reduction for urban areas. In two validation tests, using past data, three alternative
model specifications perform worse than the preferred model. The analysis indicates that
survey-to-survey imputation, when feasible, is a preferable alternative to the current method
of adjusting survey-based poverty estimates to later years.

Policy Errors and Business Cycle Fluctuations: Evidence from an Emerging Economy

Abhishek Kumar
Indira Gandhi Institute of Development Research
Sushanta Mallick
Queen Mary University of London
Apra Sinha
University of Delhi


In the immediate aftermath of the global financial crisis, the interest rate pol-
icy in India became accommodative as in other major economies, but the policy

subsequently turned highly contractionary despite falling inflation, which we char-
acterise as policy errors. Government expenditure also had similar pattern. This

paper therefore estimates a medium scale New Keynesian model (with earnings
and assets based collateral constraint) to explore the impact of such policy errors
on Indian business cycles, capturing the prevailing narrative on both monetary and
fiscal policies along with the actual inflation scenario. Our smoothed estimates of
mark-up, productivity, interest rate and government expenditure shocks mimic the
actual transition of the economy, with both policy shocks moving together in a
similar pattern in the post crisis period across policy regimes. We find that the

interest rate policy was highly contractionary during 2013-16 which led to signif-
icantly lower output. We rationalize that if supply side shocks (productivity or

mark-up) dominate, such policy errors tend to occur, suggesting that policy mak-
ers need to pay attention to the sources of inflation in a developing economy while

setting demand-management policies.

Economic and Non-Financial Determinants of Mergers and Acquisitions

Asha Prasuna
K J Somaiya Institute of Management


In the corporate field, top managements envisage M&A as a critical activity for rapid growth with several benefits to both target and acquiring company. Inorganic mode of growth is increasingly becoming a central part of strategy for organizations in developing market while the global market continues to be a focal strategy point. However, the success rate of the deals has still not significantly increased in developed market even as developing market struggles to make M&A successful. Normally in a typical M&A transaction, due diligence of financial, legal and technology factors are well analyzed. Financial factors like Market Capitalization, Deal Size, Enterprise Value, EBITDA, P/E Ratio, and Market to Book, Free Cash Flows, Financial Leverage, Liquidity, Sales Growth, and Market Price per Share are used to compare the pre and post deal to arrive at the performance of the transaction or the deal. M&A research methods and models have evolved around quantitative, qualitative and survey-based techniques. There have been many studies which identified the issues and challenges in the M&A process. Success and failures can be partially captured by analyzing number of cross-border deals by predominantly looking at the pre and post-merger valuation of the firm and also the stock price behavior of the acquired firm. The objective of this study is to explore importance of economic and non-financial factors that determine success or failure of M&A using panel data models. Three economic factors namely, Foreign Direct Investment inflow and outflow, Gross Domestic Product (GDP), and Inflation and five non-financial factors namely, government effectiveness, control of corruption, political stability, and rule of law, regulatory quality and voice accountability were used in testing the hypothesis. The paper concluded that non-economic factors are also significant in determining the performance of M&A deals.
Manu Raghav
DePauw University
Kusum Mundra
Rutgers University-Newark
Keshab Bhattarai
University of Hull
Sushanta Mallick
Queen Mary University of London
Meenakshi Rishi
Seattle University
JEL Classifications
  • O4 - Economic Growth and Aggregate Productivity
  • O5 - Economywide Country Studies