Below is given the Table of Contents of the
Issues listed above:
Volume 55.
No 4. Jan-March, 2008
ARTICLES
/ 1
Fundamentals, Financial Factors
and Firm Investment in India A Panel
VAR Approach Pranab Kumar Das
This study analyses the role of
fundamentals and financial factors
in determining firm
investment in India with imperfect
capital market in a panel VAR
framework. Previous research in this
area is based on the test of
significance (or some variant of
this) of the cash flow variable in
the investment equation. In this
strand of research, cash flow is
considered to be a financial factor.
The major theoretical problem of
this approach is that in a
forward-looking model cash flow
might be correlated to fundamental
variable(s) of a firm. Because in a
forward looking model, current cash
flow of a firm also incorporates
expectation of fundamentals. There
is a problem of disaggregating the
fundamental effect of cash flow from
the finance effect. Thus, a
statistically significant cash flow
may not imply that financial market
imperfections determine investment.
This could be resolved in a VAR
framework as it uses a simultaneous
equations model. An econometric
model is formulated with the joint
determination of investment,
marginal profit (marginal with
respect to capital stock), cash flow
and balance sheet variables. The
latter captures financial market
imperfections while cash flow is
modelled to reflect both fundamental
factors as well as financial market
imperfections while marginal profit
is a pure fundamental variable.
Using VAR methodology with dynamic
panel is a newer approach in the
panel regressions. By suitable
orthogonal decomposition (such as
Choleski decomposition) of the
shocks (to cash flow or to
fundamental or financial variables)
and then looking at the impulse
responses one can understand the
nature of dynamic
adjustments of investment,
fundamentals and financial factors.
Pranab Kumar Das, Centre for Studies
in Social Science, Calcutta.
Email:
pkdas@cssscal.org
ARTICLES
/ 2
Off Balance Sheet Exposures of
Indian Commercial Banks
A Total Factor Productivity Approach Ram Pratap Sinha and Biswajit
Chatterjee
The present paper compares the
Indian commercial banks in respect
of their technical efficiency taking
contingent liabilities and other
incomes as the output indicators and
tries to find out the how total
factor productivity changed during
the period. For this, single stage
and Malmquist DEA have been used.
The paper excludes the foreign
commercial banks from the
discussion. The period of analysis
is 2001-02 to 2004-05. Thirty-eight
Indian commercial banks have been
included in the analysis.
The results obtained from the
exercise indicate substantial
fluctuations in mean technical
efficiency scores for the observed
years. Further, the mean technical
efficiency scores of the observed
public sector commercial banks is
considerably lower than the observed
private sector banks. Both under
constant and variable returns to
scale, the overall mean technical
efficiency score of the observed
public sector banks is about 85 per
cent of the observed private sector
banks. In so far as total factor
productivity growth is concerned,
the observed commercial banks
exhibit negative growth. A
comparison of results across bank
categories indicate that the
observed public sector commercial
banks exhibited marginally higher
Malmquist TFP Index than the
observed private sector banks.
Ram Pratap Sinha is Assistant
Professor and Head, Department of
Economics,
A.B.N. SEAL (Govt.) College,
Coochbehar. Email:
rp1153@rediffmail.com
Biswajit Chatterjee is Professor of
Economics and Dean, Faculty of Arts,
Jadavpur University, Kolkata. Email:
chatterjeeb@vsnl.net
ARTICLES / 3
Sustainable Usage of River
Water and the Urban Poor
A Study of Yamuna River in Delhi Rupa Basu and D.N. Rao
Sustainable urban development,
including adequate provision of
water and sanitation, is
inextricably linked to poverty
reduction and other Millennium
Development Goals. Urban poverty
often more harsh and extreme than
rural poverty is widespread
particularly in South Asia. India
has more than 250 million
city-dwellers. Experts predict that
by 2020 about 50 per cent of India's
population will be living in cities.
Rapid urbanisation has given way to
increased urban poverty and greater
demand for many utility services in
India. In this paper we have focused
on the issue of urban poverty and
the sustainable usage of river
water. A survey of households in
Delhi was carried out to determine
the incidence of benefits from water
pollution control programmes on
different income groups. Statistical
analysis of the survey data using
OLS and Multilevel modelling methods
shows that the impact of such
programmes is actually pro-poor. A
novel feature of the study is the
use of the concept of willingness to
contribute time by the people for
activities aimed at restoring the
Yamuna River to a sustainable state.
This was also found to be higher
amongst the lower income groups. The
study suggests the need for
appropriate pricing of water as an
economic good and the participation
of local community and the private
sector for evolving a strategy for
sustainable usage of river water.
Rupa Basu, Kamala Nehru College,
Delhi University, New Delhi.
Email:
rupabasu2008@gmail.com
D.N. Rao, Centre for Economic
Studies and Planning, School of
Social Sciences, Jawaharlal Nehru
University, New Delhi.
Email:
dnrao116@gmail.com
ARTICLES
/ 4
Does Privatisation Quality Affect
Stock Market Development
Empirical Evidence from India Krishna Chaitanya Vadlamannati
and Lokanandha Reddy Irala
Since liberalisation (in the early
nineties), the capital markets in
India have seen a tremendous growth
in its capitalisation, turnover,
value addition and liquidity. On the
other hand, during the same period
of time, Indian economy witnessed
the privatisation programme, as a
part of public sector reforms"though
the effectiveness of this programme
is debatable as privatization
programme in India has seen many ups
and downs, resulting in a very slow
but fluctuating privatisation
process. In this backdrop of
coincidence of drastic growth in
capital markets and inception of the
privatisation programme during same
period of time"this paper examines
the contribution of privatisation
programme towards stock market
development in India.
The methodology adopted includes
generating five different
econometric models that capture the
implications of 'Privatisation
Quality' on 'Stock Market
Development' in India. Also examined
is the role played by various
political constraints that are
supposed to have an impact on stock
market development via privatisation
quality.
The claims brought forward by this
study are that the contribution of
privatisation quality on stock
market development is not only less
but exerts strong negative effects.
The study also found how the major
political constraints are affecting
the developments of Indian stock
markets though privatisation
quality. Therefore, we finally
conclude that privatisation is not
an important source for the rapid
growth of stock market developments
in India.
Krishna Chaitanya Vadlamannati, PhD
candidate, Department of Applied
Economics, Faculty of Business and
Economics, University of Santiago de
Compostela, Spain.
Email:
kc_dcm@yahoo.co.in
(corresponding author).
Lokanandha Reddy Irala, Dean, Dhruva
College of Management, Kachiguda,
Hyderabad, Andhra Pradesh, India.
Email: reddyirala@gmail.com or
dean@dhruvacollege.net
ARTICLES
/ 5
Pattern of Health Care Expenditure
in India Balwant Singh Mehta
The issue of health care expenditure
in India has been dealt earlier by
many scholars partly either in the
context of private or public
expenditure without linking it into
the holistic perspective of the
health expenditure scenario. This
paper makes an attempt in this
direction, where both public and
private expenditure pattern is
analysed while dealing with this
subject matter. Reserve Bank of
India and National Sample Survey
Organisation data of the 55th round
of households' consumption
expenditure has been used for public
and private health expenditure
respectively. The study concludes
that the public expenditure in the
less developed state is higher than
the developed states and contrary to
this private expenditure pattern is
higher in the developed states.
Hence, improved services of, and
access to, government facilities
will have to continue as major
thrust areas of the policymakers;
unregulated expansion of the private
sector health care market, and the
continuous poor record of the
government health facilities imply
that the poor will have to rely on
the private sector, despite the
significant cost differences. This
has been an area that has generated
a lot of discussion including the
possibility of public-private
partnerships to enable the better
use of existing government
facilities, besides drawing several
other policy conclusions.
The author is Professor at the
Institute of Human Development,
Delhi.
Email:
bsm_ihd@yahoo.com
COMMUNICATION
FOR DEBATE & RESEARCH / 1
Measures of Technological
Achievement and
Technological Adaptive Capacity
A Methodological Note* World Bank
This Methodological Note was
originally published by the World
Bank in a volume entitled "Global
Economic Prospects: Technology
Diffusion in the Developing
World-2008". This Note appears as a
technical Annex to Chapter 2
entitled "Technology and
Technological Diffusion in
Developing Countries" and this
method is also used for analysis in
Chapter 3, entitled "Determinants of
Technological Progress: Recent
Trends and Prospects". This Note
presents the technical details of
calculating some of the summary
measures of technological
achievement and technological
adaptive capacity. The methodology
implies the use of principal
component analysis for deriving the
weights required to combine the
different indicators into one
summary index. The Note also
presents some empirical results.
Further details of the methodology,
empirical results and policy
analysis are available in the full
report of the World Bank. We have
reproduced this Note here with the
hope that it would be found useful
by the research community interested
in this subject.
* We have published this Note with
the permission of The International
Bank for Reconstruction and
Development/The World Bank. To
purchase a copy of the World Bank
Publication, entitled "Global
Economic Prospects: Technology
Diffusion in
the Developing World-2008", please
visit
www.worldbank.org/publications
** "Determinants of Technological
Progress: Recent Trends and
Prospects", in the World Bank
Publication, "Global Economic
Prospects: Technology Diffusion in
the Developing World-2008".
COMMUNICATION FOR DEBATE AND
RESEARCH / 2
An Analysis of the Regional
Distribution of
Foreign Direct Investment (FDI) in
India
during Post-Liberalisation
(1991-2003)
The Influence of Investment Climate Sahana Joshi and R.V. Dadibhavi
Since 1991, the role of FDI in
Indian economy is increasing due to
a number of measures
undertaken to liberalise FDI policy.
Following economic reforms,
governments at the state level are
initiating measures to attract more
financial resources into the states
including FDI. Among the states,
Maharashtra has topped the list in
attracting FDI followed by Delhi,
Karnataka, Tamil Nadu, and Andhra
Pradesh. The paper’s aims is to
identify a set of factors based on
economic literature and theory that
influence FDI flows across 19 Indian
states.
The study analyses the influence of
totality of investment climate using
nine variables viz., market size,
availability of good quality
physical infrastructure as proxied
through Telecommunication
infrastructure and power
availability, level of urbanisation,
and
industrialisation, availability of
quality human capital and technical
manpower, presence of Research and
Development Institutions and export
oriented units. This set of
variables however doesn't cover all
important factors affecting FDI and
is not intended to provide a
full-blown model of FDI location.
Using these nine variables, FDI
Potential index has been constructed
using UNCTAD methodology. This Index
captures the picture of total
investment climate in various
states. The co-relation co-efficient
between per capita FDI approvals and
FDI Potential Index is found to be
very high. The rankings of the
states are in line with
expectations. Delhi ranks first,
followed by Goa, Maharashtra, Tamil
Nadu, Karnataka and Gujarat. The
bottom five states are as
expected"Jammu and Kashmir,
Rajasthan, Uttar Pradesh, Assam and
Bihar that have failed as FDI
destination during post
liberalisation. The interstate
disparities in FDI potential Index
as measured by Coefficient of
Variation (CV) shows wide
disparities.
Improvement in investment climate
includes providing efficient
infrastructural facilities, skilled
workforce, efficient administration,
stability of law and order etc.
Other than the factors explored in
this paper, there are various other
factors that influence FDI location
and this is beyond the scope of the
study. State governments can now
take more initiatives for economic
development than ever before. The
degree of reform mindedness of the
respective states matters a lot in
the Indian context.
Sahana Joshi, Research Scholar,
Department of Economics. Karnataka
University, Dharwad. Email:
sahanajoshi@rediffmail.com
Dr.R.V.Dadibhavi, Professor,
Department of Economics. Karnataka
University, Dharwad. Email:
rvdadibhavi@rediffmail.com
REVIEW
ARTICLE / 1
Adam Smith in Beijing
Lineages of the Twenty-first Century
(by Giovanni Arrighi. London-New
York: Verso. 2007.
PP.XIII+418. Price (Current Affairs)
$35/£25/$43.50CAN)
Reviewed by Dr. Ramgopal Agarwala,
Senior Adviser, Research and
Information System for Developing
Countries, New Delhi
GENERAL
Financial Sector Reforms
Response from Canara Bank to the
Questionnaire
from Indian Economic Journal
