Macroeconomic Issues in India
Paper Session
Friday, Jan. 6, 2023 12:30 PM - 2:15 PM (CST)
- Chair: Usha Nair Reichert, Georgia Institute of Technology
Consumption Functions of India: During, Before and After Covid-19 Pandemic
Abstract
Huge body of theoretical and empirical literature explains how micro and macro economic factors determine the level, growth and distribution of consumption among cross sections at a time or over the years or among generations. Distilled from seminar works Keynes (1936), Addo and Modigliani (1963) and Brumberg and Modigliani (1954), Samuelson (1958) Deaton (1972, 2008 and 2021), Banerjee, Duflo and Sharma (2021) and many other studies seven theories of consumption include the Keynesian absolute income hypothesis for short run consumption, Kuznet’s estimates of long run APC and Friedman’s permanent income hypothesis, life cycle and cross section consumption, precautionary theory of consumption saving and investment, inequalities in wages, income and consumption, overlapping generation and general equilibrium theory consumption. Shocks such as COVID-19 global pandemic seriously affected these consumption measures of individuals in every part of the world. After short theoretical derivation of consumption function, we focus on empirical classical and Bayesian econometric time series and cross section estimations of consumption functions at the macro and micro levels for households located in rural and urban areas across twenty eight states of India, with time series data from World Economic Outlook database of the IMF for 1990-2025 and the household level data on total expenditure, total income, government transfer for 174,405 households in India from the CMIE. This analysis reasonably shows that the marginal propensity to consume (MPC) is 49.8 percent in India from macro time series for 1990-2020, but it differs significantly at micro Household levels. Estimated MPCs for states are still positive and significant but a lot lower for states than for India in aggregate. Urban areas had higher MPCs than rural areas at the national level and big rural urban differences in them across states. Lancaster (1979, 2004) style Bayesian analyses are better.Trade Liberalization and Human Capital Accumulation: Evidence from Indian Census
Abstract
We exploit the pre-reform employment composition of Indian districts and differential tariffcuts across industries introduced by the 1991 trade liberalization to examine the impact of
liberalization on human capital accumulation measured by completion of different stages of
schooling and aggregate schooling. Using Census 2011 data, we divide age cohorts that attended school before and after liberalization to implement cohort wise difference-in-difference
strategy. We also construct a district-level panel using four decennial censuses that covers
1981-2011 and get an alternative difference-in-difference estimate by looking at the pre and
post liberalization outcomes. We find that once we allow for the differential state policies,
there is no evidence that the Indian trade liberalization has any impact on either aggregate
schooling or on the attainment at different stages of schooling. We find suggestive evidence
that positive effect of the increased returns to education was mitigated by the increased
opportunity cost of schooling.
Oil Price Dynamics in Times of Uncertainty: Revisiting the Role of Demand and Supply Shocks
Abstract
Identifying the sources of oil market shocks that drive movements in oil pricesand their consequences, has now resurfaced as a challenge, in light of the recent
global uncertainty. Using a new shock identification scheme through forecast error
variance decomposition, we identify oil demand and oil supply shocks that capture
maximum variability in the endogenous variables. Using the sample period until
2007, we find that the identified three shocks have similar effects as in the early
literature, with demand shocks playing a prominent role. However, when we identify the shocks for the post-crisis period and for the full sample until 2021, supply
shocks have emerged as a source of short-run increase in oil prices which did not
have a role to play in the pre-2008 data set. Even if we extend the model identifying
an uncertainty shock along with the three shocks, this transition to a supply shock
driving oil prices in the short-run survives, although the demand shock remains as
the key driver of oil price fluctuations in the medium-term.
Household Financial Vulnerability during COVID-19: Evidence from Indian Panel Household Surveys
Abstract
The COVID-19 pandemic adversely impacted the financial well-being of many householdsin India. This paper develops a measure of financial vulnerability of Indian households and
analyses the impact of COVID-19 on their financial vulnerability using panel household
survey data. Households’ observed financial behaviour, such as saving, borrowing for
consumption and debt refinancing, and perceived financial health are employed to create
a multidimensional financial vulnerability index (FVI). Using a difference-in-differences
approach and coarsened exact matching, we find a larger increase in household FVI in
districts that are more exposed to COVID-19 and those that experience a greater decline in
night-time lights (a proxy for economic activity) compared to households in other districts.
We also find that while households with a migrant have lower FVI in general, financial
vulnerability increases if the household had a migrant prior to the pandemic but not during
the COVID-19 time period. The findings of this paper contribute to a better understanding
of the effects of the pandemic on households.
Discussant(s)
Kusum Mundra
,
Rutgers University
Raja Kali
,
University of Arkansas
Usha Nair Reichert
,
Georgia Institute of Technology
Padma Kadiyala
,
Pace University
Valerie Cerra
,
International Monetary Fund
JEL Classifications
- E0 - General
- O5 - Economywide Country Studies