The Rise and Fall of India’s Relative Investment Price: A Tale of Policy Error and Reform
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India’s relative price of investment rose 44 percent from 1981 to 1991 and fell 26 percent 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 percent rise before reform and a 31 percent fall thereafter. GDP per effective labor was 3 percent 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 percent. (JEL E22, E23, F13, O11, O16, O19)
2013 ◽
Vol 5
(2)
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pp. 72-117
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1982 ◽
Vol 26
(3)
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pp. 238-240
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2020 ◽
Vol 26
(1)
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pp. 52-67
2020 ◽
Vol 17
(8)
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pp. 2648
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