Sectoral Infrastructure Investments in An Unbalanced Growing Economy: The Case of Potential Growth in India

Asian Development Review 33:2, 2016

23 Pages Posted: 16 Sep 2016

See all articles by Chetan Ghate

Chetan Ghate

Indian Statistical Institute - Planning Unit; German Institute for Economic Research (DIW Berlin)

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Jialu Liu Streeter

Allegheny College - Department of Economics

Date Written: September 12, 2016

Abstract

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that reduce distortions raise potential growth. We show that the positive effect of a variety of policy reforms on potential growth depends on the extent to which public and private capital are complements or substitutes. We also show that funding more infrastructure investments in both sectors by raising labor income taxes in the agriculture sector raises potential growth.

Keywords: Indian economic growth, misallocation, public capital, structural transformation, two-sector OLG growth models, unbalanced growth

JEL Classification: H21, O11, O20, O41

Suggested Citation

Ghate, Chetan and Glomm, Gerhard and Streeter, Jialu Liu, Sectoral Infrastructure Investments in An Unbalanced Growing Economy: The Case of Potential Growth in India (September 12, 2016). Asian Development Review 33:2, 2016, Available at SSRN: https://ssrn.com/abstract=2837832

Chetan Ghate (Contact Author)

Indian Statistical Institute - Planning Unit ( email )

7 S. J. S. Sansanwal Marg
New Delhi, 110016
India
91 11 51493938 (Phone)
91 11 2685 6779 (Fax)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Gerhard Glomm

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jialu Liu Streeter

Allegheny College - Department of Economics ( email )

520 N. Main Street
Meadville, PA 16335
United States

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