After the 'License Raj': Economic Liberalization and Aggregate Private Investment in India

30 Pages Posted: 6 Aug 2003

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

M. Imam Alam

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

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Date Written: August 2003

Abstract

Using three alternative models that incorporate the behavior of both credit constrained and unconstrained firms in a theoretically consistent manner, this paper presents evidence on the effects of economic liberalization of 1991 on aggregate private investment in India. Two robust conclusions emerge from the estimation of the investment function by ARDL approach. First, the response of private investment with respect to the relative cost of capital has increased at least 4.6 times after the dismantling of the 'License Raj'. Second, the evidence implies a significant improvement in the technological efficiency of the firms during the post-liberalization period. In contrast, no robust conclusion can be drawn about the severity of the credit constraint faced by the private sector following the liberalization.

Keywords: Private Investment, India, Economic Liberalization, ARDL

JEL Classification: E22, O11, O16

Suggested Citation

Emran, M. Shahe and Alam, M. Imam and Shilpi, Forhad, After the 'License Raj': Economic Liberalization and Aggregate Private Investment in India (August 2003). Available at SSRN: https://ssrn.com/abstract=411080 or http://dx.doi.org/10.2139/ssrn.411080

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

M. Imam Alam

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

Cedar Falls, IA 50614
United States

Forhad Shilpi

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

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

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