The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform
- Johri, Alok (McMaster University)
Social Science and Humanities Research Council of Canada
- Award Number: 435-2016-0708
AbstractIndia's relative price of investment rose 44% from 1981 to 1991 and fell 26% from 1991 to 2006. We build a simple DGE model calibrated to Indian data in order to explore the impact of capital import substitution policies and their reform post-1991, in accounting for this rise and fall. Our model delivers a 23% rise before reform and a 31% fall thereafter. GDP per effective labor was 3% lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal and a 71 percentage point reduction in tariff rates raised GDP per effective labor permanently by 20%.
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Update Metadata: 2020-07-18 | Issue Number: 1 | Registration Date: 2020-07-18