Journal of Indian School of Political Economy

Sushanta Kumar Mallick ¹, T. Krishna Kumar ²

Affiliations
1 Institute for Social and Economic Change and Indian Statistical Institute, IN
2 Economic Analysis Unit, Indian Statistical Institute, Bangalore Centre, Bangalore 560 059, IN

Abstract

In this paper, an attempt is made to describe the macroeconomic scenario and the policy developments of the Indian economy at a time when the policy framework is changing in the direction of market-oriented reforms. This paper tries to analyse the analytical framework underlying the current economic changes and provides a critical assessment of the reform process. First, the theoretical framework of the IMF and the WB underlying the currently underway macro adjustment policies is examined. Second, an analysis of the performance of macroeconomic policies is made by looking at various macroeconomic indicators such as inflation, fiscal gap and a critical balance-of-payments position. This is done by providing evidence through macroeconomic statistics. This paper identities the limitations of the analytic framework developed by the Fund and the Bank on the one hand and of the heuristic explanations based on comparing the trend in one macroeconomic variable with trend in another.

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Sushanta Kumar Mallick ¹

Affiliations
1 Economic Analysis Unit, Indian Statistical Institute, Bangalore, IN

Abstract

The paper investigates a question whether India’s exports lead to the country’s economic growth. In order to answer this, it has made use of causality as a statistical technique employing Granger, Sims and modified Sims (or Geweke-Meese-Dent) tests, to examine one-way or two-way causality in the Auto-regression where the lag lengths of the variables included are chosen by the Akaike’s FPE criterion. The paper examines the relationship between exports and economic growth in India using data for the period 1950-51 to 1991-92. The results appear to support the rejection of the null hypothesis that economic growth does not cause exports growth and vice versa. This finding is supported by modified Sims’ (Geweke et al) test, of which Granger and Sims tests are shown as special cases. It also demonstrates the validity of this finding with the use of Geweke et al’s test, even after extending the bivariate system to a trivariate by introducing imports as a linkage variable. The paper concludes by saying that it is Geweke et al’s test which performs better in causality testing, since the other two tests can be treated as special cases of this test.

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