Optimising the allocation of factors of production improves productivity. In India, where evidence suggests land is severely misallocated to inefficient manufacturing firms, access to financing is disproportionately tied to access to land. This column examines the link between the misallocation of land and access to capital through financial markets. A very strong positive correlation emerges between the two, consistent with the fact that land and buildings can provide strong collateral support for accessing finance from the credit market.
Gilles Duranton, Ejaz Ghani, Arti Grover Goswami, William Kerr, 27 May 2016
Gaurav Datt, Martin Ravallion, Rinku Murgai, 26 March 2016
There has been much debate about the poverty impacts of economic growth and structural transformation in developing countries. This column revisits these issues using a newly constructed dataset of poverty measures for India spanning 60 years. There has been a downward trend in poverty measures since 1970, with an acceleration post-1991, despite rising inequality. Post-1991 data suggest stronger inter-sectoral linkages. Urban consumption growth came with gains to both the rural and urban poor. The primary/secondary/tertiary composition of growth has ceased to matter, as all three sectors contributed to poverty reduction.
Adriana Kugler, Santosh Kumar, 20 March 2016
Evidence suggests that smaller family size can spur economic development and reduce poverty. This column revisits the quantity-quality trade-off between family size and education in India. The findings show that family size indeed has a negative impact on schooling. The high fertility rate within households may therefore have caused the low level of human capital accumulation in India.
Jean-Marie Baland, Rohini Somanathan, Lore Vandewalle, 07 February 2016
The benefits of microfinance are in the details. This column takes a look at commercial bank lending to Indian self-help groups – smaller, informal community-based groups – as a new and successful microfinance initiative. Different ways of thinking about getting credit to the poorest and most marginalised in society can work, but only if the institutions are properly geared up for their customers.
Keting Shen, Jing Wang, John Whalley, 05 January 2016
Many argue that China has had a higher total factor productivity growth rate than India and the US since the late 1970s. This column assesses changes in China’s technology gaps between both the US and India from 1979 to 2008 with a constant elasticity of substitution production framework. The calculations suggest that the technology gap between China and the US was significantly larger than that between India and the US for the period before 2008.
Nishith Prakash, Marc Rockmore, Yogesh Uppal, 17 December 2015
India is electing more and more politicians that are, or have been, accused of criminal activity. This column asks whether accused – and potentially corrupt – politicians influence economic activity by focusing on data from road construction, which is often tied to corruption. The evidence tentatively suggests that caste-based and patronage politics favours lower quality politicians, who in turn deliver benefits to specific groups. This generally leads to lower aggregate growth.
Hunt Allcott, Allan Collard-Wexler, Stephen D. O'Connell, 03 December 2015
In many countries, electricity supply is cited as a primary impediment to firm growth and productivity. This column assesses the effect of endemic electricity shortages on Indian manufacturers. The average reported level of shortages reduces annual plant revenues and producer surplus of the average plant by 5-10%. While the complete elimination of shortages may not be plausible in the near term, simulations show that interruptible retail electricity contracts could substantially reduce the impact of shortages on manufacturers.
Ejaz Ghani, Arti Grover Goswami, William Kerr, 18 November 2015
Urbanisation in India is taking many twists and turns. Organised manufacturing is moving out of urban areas, while unorganised manufacturing is transitioning towards urban areas. As the fourth greatest energy consumer in the world, how the country manages this ongoing industrialisation and urbanisation process will have important environmental implications. This column looks at the relationship between growth, geography, and energy efficiency in manufacturing in India. Electricity consumption per unit of output has declined in urban and rural areas, but these overall trends mask substantial variation between states and substantial potential for further efficiency improvements in energy-intensive industries.
Maya Eden, Paul Gaggl, 23 October 2015
Conventional wisdom suggests that there is too little ICT capital in poor countries and evidence show that they are indeed relatively less ICT abundant. This column discusses new evidence that this variation is not unwarranted – deviations from an estimated baseline level of ICT capital are not correlated with per capita income. This suggests that there are no systematic barriers to ICT adoption in low-income countries. They have less ICT capital since their economies are different.
Arvind Subramanian, 16 July 2015
In December, the 21st United Nations Climate Change Conference will be held in Paris. This column discusses how India – despite its image as a recalcitrant negotiator – has exhibited considerable initiative towards improving its environmental footprint in recent years. Along with a host of actions targeting emissions, deforestation, and alternative energy source, India has surpassed many developed nations in responding to recent declines in international energy prices. These efforts mean India will be able to make a substantial contribution towards the success of the negotiations in Paris
Arvind Subramanian, 15 June 2015
There is a lot of discussion of the right course of monetary policy for India. In this column, India’s Chief Economic Adviser argues that the country’s real policy interest rates have diverged significantly for consumers and producers, and are unusually high for the latter. The real rate is 2.4% based on the consumer price index, but 7.5% based on the GDP deflator. There is a clear need for more consideration of the appropriate measure of restrictiveness in these unusual times.
Ejaz Ghani, William Kerr, Alex Segura, 09 June 2015
The vast informal sector in India affects everything from poverty to growth. This column presents new facts on how Indian job growth in manufacturing is concentrated in informal tradable industries, especially one-person establishments. These features are most closely linked to the urbanisation of informal Indian manufacturing, but subcontracting and rising female participation also appear to play noteworthy roles.
Vincent Somville, Lore Vandewalle, 11 May 2015
Making transfers to bank accounts instead of paying cash could potentially enhance savings. This column tests this hypothesis using a randomised trial from India. The evidence suggests that being paid on the account increases the balance by around 110% within three months of weekly payments. The individuals who were paid in cash do not save more in other assets, such as cash at home, but increase consumption.
Seema Jayachandran, Rohini Pande, 05 May 2015
Indian children are more likely to be malnourished than their counterparts in Sub-Saharan Africa, despite higher standards of living. This column uses data on child height – an anthropometric measure of net nutrition – from Africa and India to explore how parental gender preferences affect the likelihood of children being malnourished. Indian firstborn sons are found to have a height advantage over African firstborn sons, and the height disadvantage appears first in second-born children, increasing for subsequent births. This suggests that a preference for a healthy male heir influences fertility decisions and how parents allocate resources between their children.
Clément Imbert, 10 January 2015
Rural policies that affect migration to the cities may have significant impact on urban labour markets. However, there is little empirical evidence on the magnitude of these effects. This column argues that India’s rural employment guarantee – the world’s largest workfare programme – reduces short-term migration from rural areas. At the same time, it increases wages of urban unskilled workers.
Kaushik Basu, Barry Eichengreen, Poonam Gupta, 05 November 2014
India was among the hardest hit by the Fed’s ‘taper talks’. This column argues that this impact was large for two reasons. First, India received huge capital flows before 2013. This had made it a convenient target for investors seeking to rebalance away from emerging markets. Second, macroeconomic conditions had worsened, which rendered the economy vulnerable. The measures adopted in response were ineffective in stabilising the financial markets. Implementing a medium-term framework that limits vulnerabilities and restricts spillovers could be more successful.
Amir Attaran, Roger Bate, Ginger Zhe Jin, Aparna Mathur, 09 October 2014
There is a perception amongst pharmaceutical experts that some Indian manufacturers and/or their distributors segment the global medicine market into portions that are served by different quality medicines. This column finds that drug quality is poorer among Indian-labelled drugs purchased inside African countries than among those purchased inside India or middle-income countries. Substandard drugs – non-registered in Africa and containing insufficient amounts of the active ingredient – are the biggest driver of this quality difference.
Ejaz Ghani, William Kerr, Stephen D. O'Connell, 02 October 2014
Numerous countries have implemented seat reservations for women in politics over the past decades. Starting in the early 1990s, India’s flagship decentralisation reform instituted one-third seat reservations for women in local governance bodies. This column suggests that this political empowerment increased women’s economic empowerment through at least one channel, i.e. small-scale entrepreneurship. These findings suggest that political empowerment policies for women may additionally have beneficial economic effects in the longer run.
Jeffrey Frankel, 09 September 2014
Subsidies for food and energy are economically inefficient, but can often be politically popular. This column discusses the efforts by new leaders in Egypt, Indonesia, and India to cut unaffordable subsidies. Cutting subsidies now may even be the politically savvy choice if the alternative is shortages and an even more painful rise in the retail price in future. Ironically, it is India’s new Prime Minister Modi – elected with a large electoral mandate and much hype about market reforms – who is already shrinking from the challenge.
Daniel Bennett, Wes Yin, 14 August 2014
Many drugs sold in poor countries are counterfeit or substandard, endangering patients’ health and fostering drug resistance. Since drug quality is difficult to observe, pharmacies in weakly regulated markets may have little incentive to improve quality. However, larger markets allow firms to reorganise production and invest in technologies that reduce the marginal cost of quality. This column discusses how the entry of a new pharmacy chain in India led incumbents to both cut prices and raise drug quality.