TITLE

An alternative explanation of India’s growth transition: a demand-side hypothesis

AUTHOR(S)
Nell, Kevin S.
PUB. DATE
January 2013
SOURCE
Cambridge Journal of Economics;Jan2013, Vol. 37 Issue 1, p113
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper formalises the balance-of-payments-constrained (BPC) growth model in a two-regime framework to re-examine India’s growth transition in 1980 from a demand-side perspective, as an alternative to the ‘supply-oriented’ approaches of previous studies. The results provide strong evidence of a demand-led growth transition. Although the government-led expenditure strategy of the 1980s fulfilled the role of moving the Indian economy out of its slow-growing demand regime (1952–79) into a faster-growing one, it could not sustain demand growth at the natural rate due to a balance-of-payments constraint. Consistent with the prediction of the BPC growth model, faster export growth in the post-1990 liberalisation period sustained demand growth at its maximum rate by allowing expenditure (including government spending) to grow at a fast rate. The analysis further suggests that India’s export surge in the post-1990 liberalisation period has a significant demand-side explanation, rather than an exclusively supply-side interpretation.
ACCESSION #
84670469

 

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