Journal of Indian School of Political Economy

Neeraj Hatekar ¹

Affiliations
1 Department of Economics, University of Mumbai, Kalina, Santa Cruz (East), Mumbai-400098, IN

Abstract

Why Europe grew rich and Asia did not: global divergence, 1600-1850

This book is a welcome addition to the Great Divergence debate, following the publication of Before and Beyond Divergence by R.Bin Wong and Why the West Rules for Now by Ian Morris. This book tries to apply the ‘California hypothesis’ to the Indian case. The California Hypothesis was essentially postulated by Kenneth Pomeranz in his ‘The Great Divergence: China, Europe and the Making of the Modern World Economy’, published in 2001, and ‘Re-Orient: The Global Economy in the Asian Age’ by Andre Gunder Frank, published in 1998. The broad lines of argument here are that instead of falling behind since the Ming age, the Chinese economy actually functioned rather well till the 18th century. The Industrial revolution gave Europe a temporary advantage, leading to the emergence of the ‘great divergence’ in modern times. Parthasarathi has tried to apply this argument in the Indian context.

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Neeraj Hatekar ¹

Affiliations
1 Department of Economics, University of Bombay, Bombay, IN

Abstract

In this paper, we have attempted to test some major implications of the real business cycles model of Long and Plosser [1931] using aggregate level annual data on the Indian economy for the period 1951-1985. Real business cycles imply that nominal magnitudes and real money balances cannot be exogenous driving mechanisms of the business cycle. These propositions have been tested in this paper. Section 1 discusses the low frequency properties of non-detrended data. In particular. those series in whose case the hypothesis of one or more unit ischolar_mains could not be rejected are identified on the basis of Phillips-Perron tests. Along with this, a system having secondary sector output and real balances and another having secondary sector output and wholesale prices is estimated via Johansen's 119881 cointegration, and tests of bidirectional causality following Miller and Russek [1990] have been taken. The short run business cycle is identified with data detrended using the Hodrick-Prescott filter with a weight of 400. Correlations of detrended gdp with various other detrended series are described. Section 2 takes tests of Granger causality and weak exogeneity for nominal and real money magnitudes and gdp over the cycle. Granger causality is confirmed from money to output. Though the results are somewhat ambiguous, they do not give clear cut support to the real business cycle model in the short run. In the long run, however, there is substantial support for the neutrality of money and prices.

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Neeraj Hatekar ¹

Affiliations
1 Department of Economics, University of Bombay, Bombay, IN

Abstract

In this paper, we investigate some of the stylized facts about the business cycle in India over the period 1951-52 to 1985-86. The business cycle is identified with Hodrick-Prescott filtered data. In all, sixty-four different time series are detrended and their historical time paths and comovements with other time series are described. Some business cycle regularities in respect of these features are documented. It is suggested that such stylized facts should form the basis of dynamic general equilibrium modelling of the business cycle.

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Neeraj Hatekar ¹

Affiliations
1 University of Bombay, Kalina, Santa Cruz (East), Bombay-400098, IN

Abstract

This paper attempts to study whether growth rates of money supply (M1, M3 and high powered money) are neutral over the business cycle. A relatively new technique is employed for identifying the business cycle. Causality studies over the cycle indicate two way causality from GDP to M3 and high powered money, respectively. Univariate causality from GDP fluctuations to M3 is stronger than the reverse causality from M3 to GDP fluctuations, as indicated by Geweke causal measures. Also, causality from high powered money to GDP is stronger than the reverse causality. Two small VAR models have been constructed and innovation accounting exercises have been carried out. They indicate that unanticipated money supply shocks give rise to an oscillatory convergent dynamic time path of GDP, with the overall impact being negative.

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