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Economic liberalization and price response of aggregate private investment: time series evidence from India

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  • M. Shahe Emran
  • Forhad Shilpi
  • M. Imam Alam
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.’ Ce texte examine les effets de la libéralisation de 1991 sur la réponse des prix de l’investissement privé agrégé en Inde. On aurait pu s’attendre à ce que ces réformes importantes accroissent la réponse des prix de l’investissement privéà cause (i)de l’effet Le Chatelier, (ii) de la plus forte élasticité de la demande de biens finaux, et (iii) de la relaxation possible de la contrainte financière. Les résultats empiriques fondés sur des spécifications, des méthodes d’estimation, et des périodes d’échantillonnage différentes, suggèrent un accroissement dramatique dans la réponse des prix; l’élasticité de l’investissement par rapport au coût relatif du capital s’est accru par un facteur de 5 après le démantèlement du régime Raj.

Suggested Citation

  • M. Shahe Emran & Forhad Shilpi & M. Imam Alam, 2007. "Economic liberalization and price response of aggregate private investment: time series evidence from India," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(3), pages 914-934, August.
    • Handle: RePEc:wly:canjec:v:40:y:2007:i:3:p:914-934
    DOI: 10.1111/j.1365-2966.2007.00436.x
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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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