Economic Liberalization and Price Response of Aggregate Private Investment: Time Series Evidence from India

21 Pages Posted: 20 Jul 2007

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

M. Imam Alam

University of Northern Iowa - College of Business Administration - Department of Economics

Abstract

This paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India. The wide ranging reforms are expected to increase the price response of private investment due to (i) the Le Chatelier effect, (ii) a higher price elasticity of demand for final goods, and (iii) possible relaxation of the credit constraint. The empirical results, based on alternative specifications, estimation methods, and sample periods, show a dramatic increase in the price response; the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the 'Licence Raj'.

Suggested Citation

Emran, M. Shahe and Shilpi, Forhad and Alam, M. Imam, Economic Liberalization and Price Response of Aggregate Private Investment: Time Series Evidence from India. Canadian Journal of Economics, Vol. 40, No. 3, pp. 914-934, August 2007. Available at SSRN: https://ssrn.com/abstract=1001797 or http://dx.doi.org/10.1111/j.1365-2966.2007.00436.x

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

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Washington, DC 20052
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Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
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Washington, DC 20433
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202-522-1151 (Fax)

M. Imam Alam

University of Northern Iowa - College of Business Administration - Department of Economics ( email )

Cedar Falls, IA 50614
United States

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