South Asia Economic Journal recent issues

Adverse Selection Effect for South Asian Countries in FTA Formation: An Empirical Study on the Determinants of FTA among the Bilateral Trading Partners

Jayathilaka, R., Keembiyahetti, N. — Thu, 01 Oct 2009 07:51:59 PDT

This study examines the economic and non-economic factors governing the decision of forming Free Trade Agreements (FTAs) between two non-zero trading partners by estimating a Probit model using 9,178 country pairs having 705 active and operational bilateral FTAs. This study works on the implied hypothesis that FTA is an endogenously determined variable dependent on a number of economic and non-economic factors which are usually omitted from gravity type trade models. The study finds economically important and statistically significant evidences that the likelihood of forming an FTA by a pair of countries is positively related to the economic mass of the partners, similarity in economic size, differences of relative factor intensity, political stability, past import tariffs and the existence of FTAs in the close neighbourhood, whereas it is negatively related to the distance, economic remoteness and geographic continuity. Based on these findings, this study provides a good explanation as to why South Asian Association for Regional Cooperation (SAARC) countries are still far behind the FTA negotiation process and how SAARC countries are subject to adverse selection effect by rest of the world.

Indian Economic Reforms and Foreign Direct Investment: How Much Difference Do they Make to Neighbours?

Vadlamannati, K. C. — Thu, 01 Oct 2009 07:51:59 PDT

The unprecedented emergence of a country as large as India in the South Asian region raises the issue of how it will affect neighbouring economies in terms of attracting FDI inflows. Do huge FDI inflows of India lead to ‘investment creating effect’ or otherwise for its neighbours? If so, is this positive impact conditioned by local economic reforms in India? These are the issues we try to explore empirically using data for four South Asian economies (Pakistan, Sri Lanka, Bangladesh and Nepal) from 1975 to 2006 and control for other key determinants of FDI inflows. Using the Chantasasawat et al. (2004) and Mercereau (2005) approach, we make use of five different alternative measures to create ‘India effect’ and examine its impact on FDI inflows of its neighbours. Using all the five measures, the results suggest that the India effect is positively related to the levels of FDI inflows of its neighbours. There is an evidence to support that the positive impact of Indian FDI inflows on its neighbours is conditioned by Indian economic reforms. Also found is the negative effect of reversal of Indian reforms on neighbours’ FDI inflows.

Gains from the Liberalization of Temporary Migration: The Case of India

Ahmed, S. A., Walmsley, T. L. — Thu, 01 Oct 2009 07:51:59 PDT

We examine the potential gains for India from increased temporary migration of skilled workers from India to major recipient-countries of Indian migrant workers, in light of potential productivity gains from return migration. The article uses the GMig2 Global Bilateral Labour Migration Model and its supporting database to explore the impact on the Indian economy of liberalizing the temporary movement of skilled workers; and compares the welfare effects of this liberalization to those from domestic services sector liberalization in India. The results show that the welfare of Indian workers remaining behind in India improves as a result of temporary skilled labour migration. Although there is a welfare loss arising from out-migration, this is outweighed by the substantial increase in remittances back to India. There is also a clear improvement in total real income from the increased productivity brought back to India by the returning workers.

Modelling Trade Sector and Trade Shocks in a Small Open Economy: The Case of Sri Lanka

Jayawickrama, J.M. A. — Thu, 01 Oct 2009 07:51:59 PDT

The article examines the impact of external trade shocks on the economy of Sri Lanka, a small and open developing economy with high external trade intensity. Given a variety of specifications, we favour estimating both export demand and supply functions and an import demand function. Export demand depends on own price, world export prices and world income whereas export supply depends on own price, input prices and production capacity. Import demand is dependent on income and the relative price. Combining the trade sector with the rest of the economy, the article performs simulation experiments on external trade shocks. Results reveal that an increase in import prices has a significant impact on nominal variables and improves the current account of the balance of payments. An increase in world income has a highly persistent positive impact on the current account. Further, as these trade shocks affect the nominal sector of the economy greatly, measures should be taken to cushion any associated destabilizing impact on the economy. The results also imply that export sector businesses should have the flexibility to vary the production capacity in the face of such shocks.

Economic Growth in India Revisited: An Application of Cointegration and Error Correction Mechanism

Haldar, S. K. — Thu, 01 Oct 2009 07:51:59 PDT

This article tries to examine the relevance of the three distinct types of the growth models, namely, physical capital accumulation-led growth, export-led growth and Lucas-type human capital accumulation-led growth in India taking a long-time series data from 1950–51 to 2003–04. Employing the Johansen's cointegration and error correction model, we find that human capital investment plays a crucial role both in the long run as well as in the short run. The export-led growth hypothesis is partially valid whereas the physical capital investment-led growth appears to be insignificant in our findings.

Financial Liberalization and Performance in Sri Lanka: The ARDL Approach

Paudel, R. C., Jayanthakumaran, K. — Thu, 01 Oct 2009 07:51:59 PDT

From the 1950s to the early 1970s, Sri Lankan governments pursued controls on the financial sector and have further reduced controls since 1977. This article links those financial sector reforms (falling controls) and the financial sector performance of Sri Lanka by testing hypotheses estimating cointegration with the ordinary least square (OLS)-based auto regressive distributed lag (ARDL) approach. Results show limited support for the liberalization and efficiency hypotheses that falling controls are associated with widening the financial sector and motivating investments. Results provide no support for the hypotheses that falling control is associated with deepening and improving the financial sector.

Decentralization of Governance and Economic Development: The Sri Lankan Experience after Establishment of Provincial Councils

Herath, T. N. — Thu, 01 Oct 2009 07:51:59 PDT

Economists have theoretically shown that decentralization of governance promotes growth and development. However, this is not so according to the empirical evi-dence which sometimes shows divergent results. In the meantime, more and more countries decentralize their governance. This article reviews Sri Lanka's experience of decentralization during the past 15 years. The article compares the pre- and post- decentralized economic status under Provincial Councils and examines the relationship of the degree of decentralization with poverty and the per capita income of the country. Findings show that the actual degree of decentralization is very low and it is not significantly conducive to increase per capita income, there is a huge imbalance in development among regions, and public officials at lower layers of government are not competent to reap the benefits of decentralization. For the effective functioning of decentralized governance in developing countries, the article recommends, first, to empower lower layers of government with more clearly defined functions that do not overlap with the central government; second, to develop a proper mechanism enabling lower tiers of government to reap the benefits of decentralization; third, to take prompt action to enable public officials to be familiar with the decentralized role of the state and principles of public expenditure.

Prospects and Problems in Promoting Tourism in South Asia: A Regional Perspective

Rasul, G., Manandhar, P. — Thu, 01 Oct 2009 07:51:59 PDT

South Asia possesses many valuable tourist resources and attractions, which could be important vehicles for reducing the widespread persistent poverty in South Asia. However, the potential of tourism has remained largely unrealized for several reasons. Recently, several organizations, including the South Asian Association for Regional Cooperation (SAARC), have focused on promoting intra-regional tourism by utilizing common resources, shared culture and common physical infrastructures. This article examines the progress made in promoting tourism in South Asia and explores the factors that facilitate and constrain the promotion of tourism in South Asia. The analyses show that despite several initiatives, tourism's contribution to regional national economies, in terms of employment generation, foreign exchange earnings and national revenue, has remained minimal. Complicated travel procedures, inadequate infrastructure and transport facilities and the poor quality of management and service, together with a negative image arising from safety and security concerns, have constrained intra-regional tourism. This article argues that inadequate political commitment and bureaucratic meandering are the primary obstacles in promoting tourism and economic integration in South Asia. Recommendations for removing the physical and institutional barriers to intra-regional tourism are outlined.

Indian Stakes in the Global Coconut Scenario by the Turn of the Century: An Empirical Investigation

Lathika, M., Kumar, C.E. A. — Thu, 01 Oct 2009 07:51:59 PDT

The study sought to identify the prospective coconut producing countries that put up formidable trade competition to India, and to examine the growth performance of coconut in major producing countries, especially the ones identified to be real challengers to Indian interests. The cluster analysis of trend data for 18 years till 2002 on five parameters and with reference to eight dimensions of coconut performance delineated the key players in the international coconut market. Philippines, Indonesia and India formed the cluster of major stakeholders. India fared better than both the other countries in the major cluster, in respect of area, production and yield; and therefore, it should enjoy a comparative advantage. However, the acreage growth in India was stagnant during the post-liberalization phase and it does not appear to take advantage of other options available to it by moving up the value chain and thereby resisting the market pressure on domestic prices in an open economy environment. This resulted in a price crash of coconut products at the dawn of the new century.

South Asia Development and Cooperation Report 2008

Batra, A. — Thu, 01 Oct 2009 07:51:59 PDT

The Politics of Foreign Aid in Sri Lanka: Promoting Markets and Supporting Peace

de Mel, D. — Thu, 01 Oct 2009 07:51:59 PDT

Book Reviews

Thu, 01 Oct 2009 07:51:59 PDT

Evaluating the Intra-regional Exports and Trade Creation and Trade Diversion Effects of Trade Agreements in SAARC Countries

Moktan, S. — Mon, 12 Jan 2009 06:16:20 PST

Notwithstanding the persevering endeavours of South Asian Association for Regional Cooperation (SAARC) countries to enhance economic cooperation and intra–regional trade, contentions exist amongst analysts on the objective that has remained rather elusive for over two decades. Against this backdrop, this article investigates the impact of trade agreements amongst SAARC countries on intra–regional exports by employing an augmented gravity model and a pooled panel data for the period 1980–2005. Empirical tests find scant evidence of the impact of trade agreements on exports in the pre–SAARC and pre–South Asian Preferential Trading Arrangement (SAPTA) periods, but discern a statistically significant and positive impact in the post–SAARC and post–SAPTA periods. Further tests suggest a clear evidence of trade creation above and beyond the catalytic effect of SAPTA, but only for those countries that have trade agreements in place, while the reverse is true for those that do not have such agreements. Also, the increased exports in the latter half of the period under consideration emanates as a combined effect of SAPTA as well as the delayed impact from the existing bilateral trade agreements amongst the member states.

How Have the Poor in South Asia Fared between 1980 and 2004? An Assessment of Living Conditions

Wagle, U. R. — Mon, 12 Jan 2009 06:16:20 PST

Development literature reports significant progress towards reducing poverty in the recent past in South Asia. The consistently positive rates of economic growth support this conclusion, as do the declining poverty headcount ratios. Policymakers facing enormous resource constraints, however, assess the progress in terms of a reduction in the poverty headcount, since any policy measure ought to target improvements in the living conditions of people with different characteristics. Slightly declining headcount ratios and poverty gaps in South Asia do not necessarily indicate meaningful progress in reducing poverty. In fact, the actual poverty headcount in the region has not declined; if anything, it has increased during the last 25 years. The relative economic conditions of the poor have also worsened considerably. Although the overall human development statistics have improved, it is far from certain that the genuine poor have equally benefited, since they are often difficult to reach out with services. This article calls for using comprehensive, economic and noneconomic measures of living conditions together with appropriate poverty lines.

Why Privatize? The Decline of Public Ownership in India and its Impact on Industrial Performance

Majumdar, S. K. — Mon, 12 Jan 2009 06:16:20 PST

This article examines patterns of decline in the public ownership of the corporate sector in Indian industry over a 25–year period, 1973–74 to 1997–98, to assess whether a transformation in ownership has taken place and whether the boundaries of the state as a participant in industry have significantly declined. The data cover the entire industrial population of India, albeit at an aggregate level, with the findings having immediate salience and applicability to current concerns. Privatization has not taken place in India in a significant way; nevertheless, the boundaries of the state as an industrial participant have shrunk significantly as a result of the growth of private entrepreneurship in India. The numbers of private companies being established in India have grown and the volume of equity capital being invested has risen substantially, both in absolute volume terms as well as in investment per company. This trend has been pronounced in the post–1991 period after reforms were introduced in India. Associated with this relative shrinking of government ownership is a significant increase in industrial performance. When the data for 1973–74 to 1997–98 are augmented with data for the 1998–99 to 2001–02 periods, the shrinkage of the boundaries of the state is seen to be further enhanced. Autonomous private sector growth has had a substantial impact in enhancing performance. Thus, the role of privatization as a mechanism to enhance performance becomes moot in the Indian context, especially since the costs of adjustment can be high if the decline in relative government shareholding comes about as a result of other means such as the growth of entrepreneurship in India. Simultaneously, the resources of the state can be better spent on actively encouraging investment activities rather than in undertaking divestment activities.

Impact of Mining on Agricultural Productivity: A Case Study of the Indian State of Orissa

Mishra, P. P., Pujari, A. K. — Mon, 12 Jan 2009 06:16:20 PST

This article attempts to analyze agricultural productivity in a coal mining region of Orissa. Our analysis focuses on paddy production, as this is the main produce in the study region. Fisher and Tornqvist indices are used to analyze the study. A number of t–tests are performed to examine whether the Total Factor Productivity (TFP) pattern in mining villages is different from that in the control villages. Our analysis provides evidence that there is loss in agricultural productivity due to mining activities. Apart from this, we observe a shift in livelihood from agriculture to mining related work. This social change is an indicator of rural development in the mining area, in spite of a reduction in agricultural productivity.

An Examination of the Resiliency of Sri Lanka's Tax System

Jayawickrama, A. — Mon, 12 Jan 2009 06:16:20 PST

The government revenue–income ratio of Sri Lanka has fallen sharply over the years, especially from 1990. The trend can be observed in many revenue components too. As the declining revenue–income ratio casts serious concerns over the resiliency of the country's tax system, this article sheds light on the issue by estimating the buoyancy parameters of tax functions. Results show that the long–term responsiveness to income is absolutely low in corporate income taxes. Further, the buoyancy of general goods and service tax is biased downwards due to non–structural factors. Nonetheless, personal income, excise and import taxes grow in relation to their tax bases. The non–tax revenue component also reports an almost one–for–one relation–ship with the base variable proxy. Depending on the estimated results, we claim that the low buoyancy of corporate income tax and the susceptibility of general goods and service tax to unexpected non–structural shocks are the main causes of the declining revenue–gross domestic product (GDP) ratio.

Financial Development and Economic Growth in Pakistan: Evidence Based on Autoregressive Distributed Lag (ARDL) Approach

Khan, M. A. — Mon, 12 Jan 2009 06:16:20 PST

In this study, the relationship between financial development and economic growth is examined in an Autoregressive Distributed Lag (ARDL) framework, for Pakistan, utilizing annual data over the period 1961–2005. The main empirical findings suggest that in the long and short run, financial development and investment exerted a positive impact on economic growth. The findings also suggest that in the long–run, real deposit rate is positively related to economic growth but exerted an insignificant impact; however, in the short–run, the relationship between real deposit rate and real output is significant. The long– and short–run responses of the real interest rate are very low as compared to financial development variable, implying that the availability of funds is more important than their cost. To achieve sustainable eco–nomic growth, the study suggests a further acceleration of liberalization process in Pakistan with confidence and strong commitment.

Economic Development and Political Conflict: Comparative Study of Sri Lanka and Malaysia

Abeyratne, S. — Mon, 12 Jan 2009 06:16:20 PST

Political conflict in developing countries has been a topical issue in recent development literature. While the sources of political conflict encompass a wide range of disciplinary areas, the preoccupation with the ethnocentric perspectives on the issue appears to have concealed the importance of underlying economic factors. The purpose of this article is to redress this gap through a comparative analysis of the experiences of Malaysia and Sri Lanka, which shared much in common with respect to their initial economic, political and social conditions in multi–ethnic societies. The findings of the study suggest that Malaysia could abate the possibilities of its potential political conflict, primarily through the rapid economic development process of the country. Having failed to achieve a development process in a sustainable manner, Sri Lanka, in a deep and prolonged economic stagnancy, nurtured its political conflict in two facets — the southern Sinhala militant uprising and the northern Tamil separatist struggle.

Water Footprint of India and its Implications for International Trade in Food Products

Gupta, K. B. — Mon, 12 Jan 2009 06:16:20 PST

India has been the fifth largest exporter of virtual water in the world. Based on the water footprint of the country, the magnitude of use of inland water resources for the export of crop products from India has been quite significant. The trends in the volume of virtual water being exported to the world through 283 crop products at 6–digits Harmonized System (HS) Codes helped in identifying products that are contributing the maximum to the export of virtual water from India. Although the export of virtual water helps in improving global water use efficiency and in achieving regional and global water security, the extent of over–exploitation of water resources in different regions of India that produce such crops indicate that on a long–term basis, the export of products with a large volume of virtual water should be taken up based on a larger framework encompassing not only the issues related to foreign exchange, food security, food sovereignty and employment, but also the extent of water availability at the regional level.

The Mincer Human Capital Model in Pakistan: Implications for Education Policy

Abbas, Q., Foreman-Peck, J. — Mon, 12 Jan 2009 06:16:20 PST

This article estimates and interprets returns to education for three sub–sectors of the labour market, by gender, in Pakistan, using the most recent data set of the Pakistan Social and Living Standards Measurement (PSLM) Survey, 2004–05. The results show two distinctive features of Pakistani education: the high apparent returns to female education outside agriculture and the remarkable increase of returns with successive levels of education, which are to be explained primarily by two departures from the basic Mincer model—generally poor quality primary schooling and family unwillingness to invest in female education because of a lack of earning opportunities. There is some signalling in Pakistani education investment, but the education is mainly a productivity–enhancing investment in human capital, according to a comparison of self–employed and paid employed earnings equations. Returns to the public spending of education are extremely high, suggesting considerable state underinvestment. The policy challenge is in the low wages and high education in the female paid employment sector, and the low participation rate.

Book Reviews

Mon, 12 Jan 2009 06:16:21 PST

Impact of the Indo-Sri Lanka Free Trade Agreement on the Sri Lankan Economy: A Computable General Equilibrium Analysis

Perera, M.S.S. — Wed, 02 Jul 2008 02:12:07 PDT

The Indo-Lanka Free Trade Agreement (ILFTA), which was signed in December 1998 at the highest political level, and its subsequent implementation in March 2000 marked an important milestone in India–Sri Lanka relations, and in trade relations in particular, as it concretized and paved the way for closer economic integration. This article provides a quantitative assessment of the impact of the ILFTA on macroeconomic variables, welfare and output focusing on the Sri Lankan economy. In addition, the study investigates the impact of trade liberalization on trade structure, bilateral trade between Sri Lanka and India and trade partners of Sri Lanka. We perform simulations using the Global Trade Analysis Project (GTAP) model Version 6, to quantify the impacts of liberalized trade between Sri Lanka and India. The GTAP is a computable general equilibrium (CGE) model of the world economy.

The results indicated that both Sri Lanka and India will experience welfare gains from the ILFTA. Moreover, it was evident that the Indo-Lanka full trade liberalization scenario ensures higher welfare to both the countries than the Indo-Lanka FTA with negative lists. Hence, the scenario with negative lists could be treated as a second best solution as ‘with-negative-lists’ scenario where both the countries could not reap the maximum benefits under the FTA. The simulation results demonstrate that trade diversion effects are not much significant due to trade liberalization between the two countries. The industry analysis reflected that the industries, such as metal products, paper products and publishing, electronic equipment, chemical, rubber and plastic products, machinery and equipment necessaries and other primary products will benefit due to the ILFTA. However, it could be seen that the industrial sector is benefiting more than the agricultural sector due to trade liberalization between the two countries.

Pro-Poor Growth in Pakistan: An Assessment Over the Past Four Decades

Omer, M., Jafri, S. — Wed, 02 Jul 2008 02:12:07 PDT

This study assesses the impact of economic growth on absolute poverty in Pakistan over the last four decades. The article attempts to answer the relatively ignored basic question: is economic growth in Pakistan pro-poor? In addition, an attempt has been made to evaluate the distribution of income within poor, a step necessary to determine the sensitivity of different income groups, below poverty line, to the economic growth. These assessments are conducted through Growth Incidence Curves—a superior poverty measure—and calculation of the Rate of Pro-Poor Growth (RPPG) and the Ordinary Rate of Growth (ORG). This study finds that economic growth in Pakistan is not intrinsically pro-poor. Although it was pro-poor in the seventies and is also the same in the current decade, and strongly pro-poor in the eighties, a positive growth in the nineties was, however, anti-poor. The analysis shows that the first decile is most sensitive to economic growth and most vulnerable to economic shocks.

Relationship between Exchange Rate Volatility and Central Bank Intervention: An Empirical Analysis for India

Behera, H., Narasimhan, V., Murty, K.N. — Wed, 02 Jul 2008 02:12:07 PDT

In a world of high capital mobility, several risks are emerging in the financial markets and the Central Bank intervention has played an important role in managing these risks. In India, the Reserve Bank of India (RBI) intervenes in the foreign exchange market to maintain orderly market conditions. This article empirically explores the relationship between Central Bank intervention and exchange rate behaviour in the Indian foreign exchange market. Specifically, the article investigates the effects of RBI intervention on exchange rate level and volatility. Using monthly data for April 1995 through December 2006 and GARCH (1,1) model, it is found that the intervention of the RBI is effective in reducing volatility in the Indian foreign exchange market instead of reversing trend movement of exchange rate. It is also observed that FII investments increase exchange rate volatility in India.

Analysis of the Growth of Manufacturing Industries in Bangladesh

Das, S., Baten, Md. A., Rana, Md. M., Kheleque, Md. A. — Wed, 02 Jul 2008 02:12:07 PDT

In this article, industrial growth of some manufacturing industries in Bangladesh has been studied using Census of Manufacturing Industries (CMI) Data from the years 1981–82 to 1999–2000. Higher increasing growth in value added for some industries in the post-liberalization period (1991–92 to 1999–2000) while for the most important industries, satisfactory growth level in the pre-liberalization period (1981–82 to 1990–91) has been experienced. Highest growth in fixed capital and improved concentration level in employment have been examined. Comparatively, capital goods industries showed highest significant annual growth rate (13.95 per cent). All manufacturing industries registered positive and negative employment elasticities with respect to value added and fixed capital whereas only positive output elasticities with respect to fixed capital and employment for the same.

Does Financial Development Cause Economic Growth? The Case of India

chakraborty, I. — Wed, 02 Jul 2008 02:12:07 PDT

This article examines whether financial development has ‘caused’ economic growth in India since 1996. The dynamic interactions between the growth of real Gross Domestic Product and indicators of financial development are investigated using the concept of Granger Causality after testing for cointegration using both the Engle-Granger and Johansen techniques. The ADF test for cointegration proposed by Gregory and Hansen (1996) reveals that there has been both the level shift and regime shift in the specifications relating economic growth and financial development. The empirical results obtained by the Johansen method and ADF test suggest the existence of a stable long-run relationship between stock market capitalization, bank credit and growth rate of real GDP. The growth rate of real GDP is also found to be cointegrated with financial depth. However, causality runs from the growth rate of real GDP to stock market capitalization. The sector-wise rates of growth of the industrial and services sectors are found to be cointegrated with the stock market development as well as banking sector development and financial depth. The direction of causality for both the sectors runs from the rate of growth to stock market capitalization. We also observe that financial depth causes industrial growth and causality runs in both directions between bank credit and industrial growth. Furthermore, volatility in stock prices is cointegrated with each growth rate—of GDP, of industrial sector output and of the service sector output. The article establishes that, in an overall sense, economic growth has ‘caused’ financial development in India.

Financial Development and Textile Sector Competitiveness: A Case Study of Pakistan

Hanif, M. N., Jafri, S. K. — Wed, 02 Jul 2008 02:12:07 PDT

Kletzer and Bardhan (1987) argue that countries with a relatively well-developed financial sector have a comparative advantage in industries that rely on external finance. Beck (2002) and Fanelli and Medhora (2002) find that well-developed financial sector translates into a comparative advantage in the production of manufactured goods. There has been no attempt so far to explore the relationship between the financial development and international trade competitiveness in the case of Pakistan. We construct Balassa's Revealed Comparative Advantage (RCA) index for textile sector of Pakistan. Using ratio of credit extended to the textile sector to the total non-government credit of the banking system (Textile Credit Share [TCS]) as proxy for external finance, we estimate long-run relationship and Error Correction Mechanisms (ECM) between RCA index and TCS while controlling for other determinants of the international trade competitiveness of textile sector of Pakistan. In line with the findings of Beck (2002) and Fanelli and Medhora (2002), our results suggest that recourse to external finance has a strong positive impact on the country's textile sector competitiveness both in the short and the long run, even when we control for traditional determinants of competitiveness.

An Empirical Verification of Cointegration and Causality in Indian Stock Markets: A Case of BSE and NSE

Madhusoodanan, P.R., Kumar, H. V. — Wed, 02 Jul 2008 02:12:07 PDT

The study examines the empirical validity of cointegration and causality between the two dominating Indian stock markets: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The daily closing values of the BSE Sensex and the NSE Nifty indices are retrieved from the PROWESS online database maintained by the Centre for Monitoring Indian Economy (CMIE). The study covers a period of nine years spanning from 1 January 1997 to 31 December 2005. The analysis reveals the existence of market integration between the BSE and the NSE. This demonstrates information dissemination between these two markets. The study further confirms the role of NSE as a dominating factor over BSE.

Regional Energy Trade in South Asia: Problems and Prospects

Dhungel, K. R. — Wed, 02 Jul 2008 02:12:07 PDT

The South Asian region represents 22 per cent of the world's total population comprising over one billion, of which 30–40 per cent lives below poverty line. Of them, only 40–50 per cent have access to electricity. Despite the development, the countries of South Asian region are energy starved. To meet the growing energy requirements, energy trade between these countries is essential. But South Asia's current cross-border energy trade is limited to Bhutan, India and Nepal. Recently, energy trade between Bangladesh, India and Pakistan has been proposed, in line with the construction of liquefied natural gas pipeline from Myanmar to India through Bangladesh, and Iran to India through Pakistan. These proposed energy trade projects, if implemented successfully, will contribute to integrate regional economies.

Some Methodological Aspects of Rates of Growth Computations: Limitations and Alternatives

Sethi, A. S. — Wed, 02 Jul 2008 02:12:07 PDT

Rates of growth in economic time series are one of the most commonly made computations in analytical programmes. Although exponential equation plays a pivotal role in estimating such rates of growth, there is a multiplicity of weak points associated with the usual methodology adopted for the purpose. The present note aims at highlighting some such limitations and points out avoidance of an indiscriminate use of the exponential equation. Depending upon the situation being faced with, the note outlines alternative approaches for estimating average annual rates of growth.

Book Reviews

Wed, 02 Jul 2008 02:12:07 PDT

First Meeting of SAARC Transport Ministers, 31 August 2007

Wed, 02 Jul 2008 02:12:07 PDT

Textiles and Clothing in South Asia: Current Status and Future Potential

Adhikari, R., Weeratunge, C. — Mon, 11 Feb 2008 06:47:22 PST

Phasing out of the Agreement on Textiles and Clothing (ATC) have had different degrees of impact on the South Asian countries depending on their level of competitiveness, factor endowment and marketing calibre. Based on the data available for the first two years after the phasing out of quotas, it can be inferred that temporary safeguards imposed on China have provided some breathing space for the relatively less competitive countries in the region. However, the entire landscape of the Textiles and Clothing (T&C) sector in the region will change after the elimination of these safeguards in 2008. This article argues that despite several constraints, the South Asia region has a potential to develop itself as a global T&C hub. Therefore, concerted efforts need to be made at three levels to realize this potential. First, to form a common position at the international negotiations forum to overcome protectionist market access barriers. This should be done in tandem with the use of the regional cooperation platform to remove barriers to trade, investment and technology transfer within the region. Second, to make investments in addressing supply side constraints in order to enhance the competitiveness of the South Asian T&C sector in a phased manner. Third, to adopt strategies used successfully by countries within and outside the region to ward off competitive pressures, which are likely to ensue when the T&C trade becomes free from all restrictions.

Determinants of Private Saving in South Asia

Bhandari, R., Dhakal, D., Pradhan, G., Upadhyaya, K. P. — Mon, 11 Feb 2008 06:47:22 PST

This article examines the determinants of private saving rates in five South Asian nations using annual time series data. An econometric model is developed in which private saving is a function of government expenditures, the money supply, the real interest rate, macroeconomic instability, per capita income growth and two demographic variables. Prior to carrying out the estimations, we test for the stationarity of the data series by carrying out unit root tests. The overall results indicate that government expenditures and past savings have a negative impact on private saving, while the level of financial development and per capita income growth have a positive effect. The degree of urbanization, the real interest rate and the dependency ratio have no noticeable impact on private saving.

Exploiting Sri Lanka's Free Trade Agreements with India and Pakistan: An Exporter's Perspective

Yatawara, R. A. — Mon, 11 Feb 2008 06:47:22 PST

The article looks at the impact of preference, given under the bilateral free trade agreements Sri Lanka has signed with India and Pakistan. The focus here is on the export side and away from the import angle. This article identifies where the greatest preferences are offered to Sri Lanka-based exporters and analyzes the relationship between preferences and the export outturn. Preferences are calculated incorporating the current levels of protection in India and Pakistan. The article argues that successful Sri Lankan exporters’ penetration of the large Indian market, as reflected by the doubling of total exports over 2003–05, actually reflects a very concentrated increase in exports of a few products. Controlling for industry effects, preferences do not have a statistically significant impact on exporting to India.

Estimation of the Export Demand Function using Bilateral Trade Data: The Case of Bangladesh

Nur, M., Wijeweera, A., Dollery, B. — Mon, 11 Feb 2008 06:47:22 PST

Trade liberalization policy represents an important policy instrument for developing countries. However, existing empirical literature on the impact of trade liberalization is ambiguous and this uncertainty also extends to Bangladesh economy. Various studies have sought to estimate econometrically the export demand function for Bangladesh as a means of clarifying the effects of trade liberalization in that country. Unfortunately, no recent studies have examined the liberalization effect on disaggregated exports in Bangladesh. In order to remedy this neglect, this article examines the likely impacts of trade liberalization policies on the disaggregated export function in Bangladesh for the period 1973–2004. The main purpose is to examine whether bilateral export elasticities are significantly different between major trading partners. If this is indeed the case, then different policies should be implemented rather than a single trade policy to enhance exports. A secondary objective is to establish whether trade liberalization has had any impact on the export sector in Bangladesh.

Competition in Indian Banking: An Empirical Evaluation

Prasad, A., Ghosh, S. — Mon, 11 Feb 2008 06:47:22 PST

It is widely perceived that competition in the Indian banking sector has increased since the inception of the financial sector reforms in 1992. Using annual data on scheduled commercial banks for the period 1996–2004, the article evaluates the validity of this proposition in the Indian context. The empirical evidence reveals that Indian banks earn revenues as if under monopolistic competition.

Socio-economic Development in Nepal: Past Mistakes and Future Possibilities

Devkota, S. R. — Mon, 11 Feb 2008 06:47:22 PST

In the past five decades, Nepal has followed the standard modernization path with mixed results. The country witnessed the growth of rent seeking elites and increased income inequality, in spite of huge national and international expenditures. This article presents a retrospect of the major socio-economic development policies that Nepal adopted in the past 50 years during which a variety of politico-economic decision-making systems were introduced. The initial years in the fifties, after emancipation from a very autocratic regime of more than 100 years, were particularly chaotic. The second half of the fifties ushered in a period of reform but this was interrupted by King Mahendra's unfortunate political coup of 1960. The socioeconomic development of 1961 to 1990 was very sluggish, regionally biased and unproductive, which led to mass poverty level in Nepal. The socio-economic progress after 1990 seems encouraging but the real achievements have been overshadowed by the weakness of the politico-economic character of the ruling classes. Furthermore, the emergence of the Maoists in 1996 created a politico-economic crisis and halted the opportunities for socio-economic development. A new understanding among political parties including the Maoists in 2006 provides hope for building a new Nepal. A politico-economic structural change is required to enhance village/rural economy along with human and social capital enrichment strategies that will pave the way to break the poverty cycle. A novel constitution that guarantees rights, resources and responsibility, accountability at different levels and empowers people, rather than a simple politico-administrative makeshift at the central level is expected.

Pakistan's Economy since 1999: Has There Been Real Progress?

Khan, S. R. — Mon, 11 Feb 2008 06:47:22 PST

Military governments in Pakistan and elsewhere claim legitimacy based on superior economic management and the pretext for assuming power is usually corruption and economic mismanagement of incumbent political regimes. Ever since the current military government seized power in Pakistan in October 1999, it has, like earlier military governments, claimed to have turned the economy around citing selective statistics. A more careful and comprehensive review of the same statistics suggests that this claim is exaggerated. Also, like past military governments, this one has ignored investing in people, and the human condition as measured by unemployment and poverty has worsened and as measured by other social indicators the progress has notably slackened. Most now agree that improving the human condition is a necessary condition for robust and sustainable economic growth and by this criterion the military government has not done well.

SPS Regulations and Competitiveness: An Analysis of Indian Spice Exports

Kumar, C. N., Muraleedharan, V.R. — Mon, 11 Feb 2008 06:47:22 PST

This article investigates India's export performance of spices (whole pepper and capsicum) in the markets of the Organization for Economic Cooperation and Development (OECD) and South and Southeast Asia, which constitute a substantial market for Indian spices. A Constant Market Share model is used to decompose the growth in exports of spices into size of the market effect, market composition effect and competitiveness effect. The analysis is performed for the exports during the nineties, the period India had to resort to increased challenges of food safety. The study confirms that there has not been substantial trade effect for Indian spices due to quality issues, such as sanitary and phytosanitary regulations. This article argues that increase in exports to neighbouring regions is explained more by the increased demand and supply and not by the stringent quality requirements of traditional importing countries.

Book Reviews

Mon, 11 Feb 2008 06:47:22 PST

Declaration of the Fourteenth SAARC Summit

Mon, 11 Feb 2008 06:47:22 PST