The Indian Economic Journal, Ahead of Print.
The present study is an attempt to identify the major sources of economic growth in India over the period 1971–2016 by employing the auto-regressive distributed lag (ARDL) bounds testing model. The long-run estimates of the ARDL model indicate that the economic growth in India is predominately driven by per capita capital and financial development while inflation retards economic growth. Contrary to the long run, the short-run results of error correction representation suggest that per capita capital along with human capital development has a significant positive impact on economic growth in India, while inflation curtails economic growth. India has some important policy insights to draw from these findings that the government policies in India need to emphasize the institutional mechanisms that further strengthen the Indian financial system which would increase its depth, scope and stability to foster economic growth. Further, the policymakers in India should strengthen their anti-inflationary measures, through supply-side reforms, to avoid the negative effects of inflation on economic growth. Finally, the government policies in India should also place a considerable emphasis on investment in human capital, which in turn fosters economic growth.JEL Codes: O4, G2, E24, C1
Competition, liquidity creation and bank stability
Abstract
We examine the conditioning role of competition in affecting the relationship between liquidity creation and bank risk in a sample of US banks from 2001 to 2016. We find aggregate evidence that competition is related to bank fragility as proxied by the Z-score both directly and indirectly through its interaction with liquidity creation. However, when the ex-ante level of liquidity creation is low and/or competition is low to moderate, competition is associated with an improvement in bank risk at a given level of liquidity creation. In addition, the joint fragility effect of competition and liquidity creation manifests more strongly, in an economic sense, in poorly capitalised banks and large banks with assets of more than $3 billion. Our findings emphasise the crucial role of targeted competition regulations in ensuring bank solvency and systemic stability while maintaining a robust level of competition.
Economic consequences of new accounting standards in UK charities
Abstract
This study examines the effect of changes to the 2015 UK charities accounting standards on financial reporting timeliness and audit fees. Utilising 62,785 observations (9351 charities) from 2010 to 2017, we report a significant decrease in financial reporting timeliness following the new accounting standards regime. The decrease is more pronounced in charities with audited financial statements because of their lengthier audit report lag. Audit fees are also substantially higher following the new accounting standards implementation. Sensitivity tests reveal charities are more likely to have an unusual reporting lag following the introduction of the new accounting standards.
Relationship Between Export and Economic Growth: Evidence from West African Countries
The Indian Economic Journal, Volume 72, Issue 2, Page 287-302, March 2024.
The export-led growth hypothesis (ELGH) postulates that export is a major driver of economic growth. This study tests this hypothesis and further analyses the determinants of exports in the case of West African countries. An annual panel data spanning from 2008 to 2018 was used. Findings from the system GMM and OLS estimations validate the ELGH in West Africa. The results also reveal that foreign direct investment, employment, remittances, land area and infrastructure are significant boosters of export while population, real effective exchange rate and taxes on international trade are detrimental to export performance in the region. The study recommends the relaxation of taxes especially on international trade to encourage businesses that produce to feed the export sectors, provide an enabling environment for businesses and also attract foreign investors.JEL Codes: F14, F21, O55
The export-led growth hypothesis (ELGH) postulates that export is a major driver of economic growth. This study tests this hypothesis and further analyses the determinants of exports in the case of West African countries. An annual panel data spanning from 2008 to 2018 was used. Findings from the system GMM and OLS estimations validate the ELGH in West Africa. The results also reveal that foreign direct investment, employment, remittances, land area and infrastructure are significant boosters of export while population, real effective exchange rate and taxes on international trade are detrimental to export performance in the region. The study recommends the relaxation of taxes especially on international trade to encourage businesses that produce to feed the export sectors, provide an enabling environment for businesses and also attract foreign investors.JEL Codes: F14, F21, O55
How does climate risk affect corporate innovation? Evidence from China
Abstract
This paper investigates the effects of climate risk on corporate innovation in China. Employing a city-level climate risk indicator that we constructed and a sample of 21,430 firm-year observations of Chinese-listed companies, we find that climate risk is negatively associated with corporate innovation investment and outcome. These results are robust to alternative empirical designs and identifications. Our mechanism analyses reveal that climate risk impedes corporate innovation by motivating firms to increase cash holdings as financial reserves. Additional analyses suggest that the adverse impact of climate risk on corporate innovation is more pronounced for high-tech firms, and less salient for firms with higher financial constraints and female Chairperson or CEO. Furthermore, the decrease in corporate innovation due to climate risk can lead to a reduction in firm value. These findings contribute to the existing literature on climate risk and corporate innovation and inform regulators and listed firms concerning climate risk.
Trust and corporate debt maturity mismatch: Evidence from China
Abstract
This study explores the relationship between social trust and firm debt maturity mismatch in the Chinese context. Additionally, we investigate the economic mechanisms through which social trust affects debt maturity mismatch, and the differential roles played by social trust among firms with different characteristics. We employ enterprise trustworthiness scores and provincial blood donation rates as our measures of regional social trust level and find a negative relationship between local trust and firm debt maturity mismatch, suggesting that social trust which promotes ethical norms acts as a restraint on firms' propensity for excessive risk. An alternative but consistent explanation is higher social trust increases debtors' willingness to lend, hence it reduces firms' funding costs and consequently the potential cost-saving motivation behind such a mismatch. We further document evidence that social trust improves the firm information environment and consequently risk-taking and/or the ability to reduce funding costs. The study also reveals variations in the role of social trust based on firm characteristics, such as leverage and profitability, and the ownership structure (state-owned enterprises vs. non-state-owned enterprises). The findings contribute to the literature by highlighting the increasing importance of social capital for policy and governance.
A Systemic Analysis of the Impact of the Pandemic on the Indian Tourism Economy
Margin: The Journal of Applied Economic Research, Volume 17, Issue 1-2, Page 113-123, February–May 2023.
The COVID-19 pandemic had a severe impact on the tourism industry across the world. Be it aviation or hospitality, transportation, tour operators or eateries, every activity related to tourism was adversely affected by the pandemic in an unprecedented manner. India saw the first severe impact during the first quarter of 2020–2021 when the tourism industry was severely affected, in terms of loss in tourism demand due to a significant fall in tourist arrivals. The industry saw gradual signs of recovery post-October 2020 but was hit again by the second wave during April–June 2021 and then by the third wave during November 2021–January 2022. Given the contribution that tourism makes to the entire economy in terms of income and employment generation, it is important to do a systemic estimation of the losses caused by the pandemic so that resilient policies are put in place to address the challenges at all levels and put the tourism sector back on the path it was traversing before the pandemic. This article presents the estimates of economic losses resulting from the changes experienced during the most critical period of the pandemic, that is, the first quarter of 2020–2021, which witnessed a complete lockdown, and the subsequent two quarters, wherein the sector started showing gradual recovery following various relaxations in economic activities and travel movements. The estimates are based on the methodology that draws from the framework laid out in the Tourism Satellite Account of India, which, in turn, is based on the methodological framework recommended by the United Nations World Tourism Organization.JEL Codes: L830, Z320, F620
The COVID-19 pandemic had a severe impact on the tourism industry across the world. Be it aviation or hospitality, transportation, tour operators or eateries, every activity related to tourism was adversely affected by the pandemic in an unprecedented manner. India saw the first severe impact during the first quarter of 2020–2021 when the tourism industry was severely affected, in terms of loss in tourism demand due to a significant fall in tourist arrivals. The industry saw gradual signs of recovery post-October 2020 but was hit again by the second wave during April–June 2021 and then by the third wave during November 2021–January 2022. Given the contribution that tourism makes to the entire economy in terms of income and employment generation, it is important to do a systemic estimation of the losses caused by the pandemic so that resilient policies are put in place to address the challenges at all levels and put the tourism sector back on the path it was traversing before the pandemic. This article presents the estimates of economic losses resulting from the changes experienced during the most critical period of the pandemic, that is, the first quarter of 2020–2021, which witnessed a complete lockdown, and the subsequent two quarters, wherein the sector started showing gradual recovery following various relaxations in economic activities and travel movements. The estimates are based on the methodology that draws from the framework laid out in the Tourism Satellite Account of India, which, in turn, is based on the methodological framework recommended by the United Nations World Tourism Organization.JEL Codes: L830, Z320, F620
The Economic Implications of Air Pollution: A Case of Two Cities
Margin: The Journal of Applied Economic Research, Volume 17, Issue 1-2, Page 94-112, February–May 2023.
Many cities in urban India, particularly the metros, are major hotspots of air pollution with a PM2.5 concentration level ranging above the permissible limits defined by the World Health Organisation for most of the year. Since the transport sector is a main source of air pollution in urban India, the Government of India adopted BS-VI emission standards in 2016 for all major on-road vehicle categories. The rollout of clean fuel (BS-VI) in India began in the capital city of Delhi, one of the most polluted cities of India. In this context, the primary objective of the article is to analyse the economic cost of air pollution in Delhi/Haryana through a primary survey of occupational groups exposed to ambient air pollution. The secondary objective is to provide suggestive evidences of the implications of the roll-out of cleaner fuel in Delhi while the same was not yet implemented in the neighbouring city of Narnaul in Haryana. We measure the economic cost of air pollution using three approaches, namely, the cost of illness approach, the productivity loss approach and also by undertaking a contingent valuation (CV) exercise. Through a first-of-its-kind CV survey administered in India, the welfare analysis uses the Indian estimates of the value of life years (VOLYs) to arrive at the welfare loss figures. We found that the economic costs in terms of health expenditure and productivity loss were ₹4.08 billion and ₹31.28 billion, respectively, for New Delhi, which remained higher than Narnaul. Although the cost of pollution decreased during the second phase of the survey towards the end of 2019, we argue that a longer time period analysis is needed to understand the true impact of introduction of the cleaner BS-VI fuel in reducing the impact of air pollution within the city. However, if one considers the value of LYs for Narnaul as a proxy for Haryana, we find that the welfare loss is higher in Haryana than in New Delhi.JEL Codes: I18, Q51, Q52, Q53, Q58
Many cities in urban India, particularly the metros, are major hotspots of air pollution with a PM2.5 concentration level ranging above the permissible limits defined by the World Health Organisation for most of the year. Since the transport sector is a main source of air pollution in urban India, the Government of India adopted BS-VI emission standards in 2016 for all major on-road vehicle categories. The rollout of clean fuel (BS-VI) in India began in the capital city of Delhi, one of the most polluted cities of India. In this context, the primary objective of the article is to analyse the economic cost of air pollution in Delhi/Haryana through a primary survey of occupational groups exposed to ambient air pollution. The secondary objective is to provide suggestive evidences of the implications of the roll-out of cleaner fuel in Delhi while the same was not yet implemented in the neighbouring city of Narnaul in Haryana. We measure the economic cost of air pollution using three approaches, namely, the cost of illness approach, the productivity loss approach and also by undertaking a contingent valuation (CV) exercise. Through a first-of-its-kind CV survey administered in India, the welfare analysis uses the Indian estimates of the value of life years (VOLYs) to arrive at the welfare loss figures. We found that the economic costs in terms of health expenditure and productivity loss were ₹4.08 billion and ₹31.28 billion, respectively, for New Delhi, which remained higher than Narnaul. Although the cost of pollution decreased during the second phase of the survey towards the end of 2019, we argue that a longer time period analysis is needed to understand the true impact of introduction of the cleaner BS-VI fuel in reducing the impact of air pollution within the city. However, if one considers the value of LYs for Narnaul as a proxy for Haryana, we find that the welfare loss is higher in Haryana than in New Delhi.JEL Codes: I18, Q51, Q52, Q53, Q58
Urban Exclusion: Rethinking Social Protection in the Wake of the Pandemic in India
Margin: The Journal of Applied Economic Research, Volume 17, Issue 1-2, Page 59-93, February–May 2023.
The COVID-19 pandemic, and the consequent nationwide lockdown in India that began on 25 March 2020, caused a major disruption in the labour market, leading to the widespread loss of livelihoods and food insecurity. The findings from a telephonic survey of a representative sample of more than 3,000 households in the National Capital Region also reveal a dramatic loss in earning capacity. The place of residence and occupation mediated the impact of the lockdown, with greater vulnerabilities witnessed amongst those engaged in informal employment, especially in urban areas. The government rolled out a series of welfare measures in response to the widespread economic distress, with the provision of free foodgrains and cash transfers aimed at rehabilitating those who were the most affected. While the use of prior social registries enabled quick disbursement, our analysis shows that few households received both foodgrains and cash transfers, particularly in urban areas. Urban residents were also eight percentage points less likely to receive cash transfers than their rural counterparts.JEL Codes: I38, J21, O17
The COVID-19 pandemic, and the consequent nationwide lockdown in India that began on 25 March 2020, caused a major disruption in the labour market, leading to the widespread loss of livelihoods and food insecurity. The findings from a telephonic survey of a representative sample of more than 3,000 households in the National Capital Region also reveal a dramatic loss in earning capacity. The place of residence and occupation mediated the impact of the lockdown, with greater vulnerabilities witnessed amongst those engaged in informal employment, especially in urban areas. The government rolled out a series of welfare measures in response to the widespread economic distress, with the provision of free foodgrains and cash transfers aimed at rehabilitating those who were the most affected. While the use of prior social registries enabled quick disbursement, our analysis shows that few households received both foodgrains and cash transfers, particularly in urban areas. Urban residents were also eight percentage points less likely to receive cash transfers than their rural counterparts.JEL Codes: I38, J21, O17
Priorities for the G20 Finance Track
Margin: The Journal of Applied Economic Research, Volume 17, Issue 1-2, Page 7-58, February–May 2023.
Emerging markets and developing economies are currently facing major challenges from global shocks, including a slowdown in global growth; food and energy price increases; decline in risk appetite of international investors; unsustainable debts in low-income countries; and ongoing climate risks. National policies have not sufficed to meet these challenges. Efforts at the national level must be complemented by changes in the global economic and financial architecture designed to make the world a safer place. In this article, we focus on the financial aspects of such reforms. The financial agenda as we see it has seven key elements: (i) reform of central bank swap lines, (ii) reform of IMF-contingent credit lines, (iii) SDR reallocation, (iv) reform of credit rating agencies, (v) creation of currency hedging instruments, (vi) inclusion of climate-resilient debt clauses in new debt instruments and (vii) steps to streamline the debt restructuring process. We detail this agenda and urge the G20 members to implement the recommended measures.JEL Codes: E44, E58, E61, F34, F36, F38
Emerging markets and developing economies are currently facing major challenges from global shocks, including a slowdown in global growth; food and energy price increases; decline in risk appetite of international investors; unsustainable debts in low-income countries; and ongoing climate risks. National policies have not sufficed to meet these challenges. Efforts at the national level must be complemented by changes in the global economic and financial architecture designed to make the world a safer place. In this article, we focus on the financial aspects of such reforms. The financial agenda as we see it has seven key elements: (i) reform of central bank swap lines, (ii) reform of IMF-contingent credit lines, (iii) SDR reallocation, (iv) reform of credit rating agencies, (v) creation of currency hedging instruments, (vi) inclusion of climate-resilient debt clauses in new debt instruments and (vii) steps to streamline the debt restructuring process. We detail this agenda and urge the G20 members to implement the recommended measures.JEL Codes: E44, E58, E61, F34, F36, F38