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China's
Urban - Rural Disparity under
Alternative Financial and Fiscal Policies
-- Iwan
Azis,
Wing Thye Woo,
Zhai Fan and Chanin Manopiniwes
Premier
Wen Jibao, when asked about how the Chinese government would
deal with the overheating economy as indicated by the expanding
money supply, bank credit and fixed investment, in a Reuters
interview in April 2004, said: "We need to take effective
and very forceful measures to resolve those problems as
soon as possible." A year later, the Premier submitted
a report to the National People's Congress, emphasizing
the need for China to pursue a people-centered development
strategy and to promote a comprehensive and coordinated
development between the economy and the society, between
urban and rural areas, and among all regions. Clearly, the
major challenge for the Chinese government is to formulate
a set of policies that would slow down the rapid growth
of the economy, and at the same time, reduce the urban-rural
disparity and income inequality. This paper presents the
results of a joint research with China's DRC/State Council
on macroeconomic and financial policies that will insure
a soft landing and reduce the urban-rural disparity. Due
to the economy-wide nature of the issue, a comprehensive
`financial general equilibrium' model is developed and used
to simulate a set of policy scenarios. It is found that
a standalone policy of capital account liberalization tends
to enhance growth but worsen the income disparity, while
reducing the growth of bank's credit is likely to generate
the opposite effects. By exploring a set of policy mix,
it is revealed that there is room for China to tighten credit,
and at the same time, liberalize the capital account. This
will lead to a soft landing without worsening the income
distribution and the rural-urban gap. The short-run increase
in the rural-urban migration (among unskilled workers) will
gradually decline and eventually cease. The simulation results
generally support a gradual liberalization of the capital
account.
©
2006 IUP . All Rights Reserved.
Role
of FDI in the Economic Development of Nepal
--
Andrea Elliott and Kishore G Kulkarni
Nepal,
a tiny country sandwiched between two giant economies, India
and China, has been going through a political and economic
setback in recent times. Nonetheless, Nepal has adopted
the policy of attracting Foreign Direct Investment (FDI),
which has shown some positive results. This paper discusses
the points that make FDI more attractive for foreign firms,
applying those points to the Nepalese economy and finding
out the role played by FDIs in the economic development
of Nepal. The paper observes that increased FDI has not
been very significant in the growth of Nepalese GDP in absolute
as well as in the relative sense. The authors also try to
find out the reasons behind this non-existent relationship
between FDI and GDP. The paper is divided into four sections.
After the introductory remarks in the first few pages, Section
2 summarizes the points that firms consider most important
for FDI determination, Section 3 uses the data and tables
of the Nepalese economy to unsuccessfully find the relationship
between FDI and GDP of Nepal, and Section 4 brings out the
summary and conclusion. The paper also makes some suggestions
for policy changes that can attract FDI in future.
©
2006 IUP . All Rights Reserved.
Do
`Motives' behind FDI Flows have
any Implications for their Effects on the Host Country?
-- Tanushree
Mazumdar and Vijay T M
Motives
for FDI range from resource-seeking and market-seeking to
efficiency-seeking. The authors believe that the benefits
(in terms of cost efficiencies, productivity and profitability)
that a developing country reaps from FDI flows depend on
the motives behind the FDI flows. They hypothesize that
a country is likely to gain more from efficiency-seeking
FDI flows than from market-seeking or resource-seeking FDI
flows. The authors test this hypothesis with respect to
India, using annual data and a distributed lag model. Five
sectors have been selected for the purpose of testing the
hypothesis. Findings reveal that in India, FDI flows have
not contributed significantly to the three parameterscost
reduction, improvement in productivity and profitabilityin
most of the sectors. It is a significant finding that the
computer industry has gained from FDI flows in terms of
cost reduction. The authors also further find that the motives
behind FDI flows to this sector have been `efficiency-seeking'.
©
2006 IUP . All Rights Reserved.
India's
External Sector: Performance and Prospects
-- Geethanjali
Nataraj and Pravakar Sahoo
Trade
policy reforms constitute the core of economic reforms in
India. This paper analyzes India's external sector while
highlighting the positive impact of India's trade policy
reforms. The trends in India's foreign trade, changes in
the composition and direction of India's exports and imports
have been examined in detail in the paper. The study shows
that there has been a consistent increase in India's exports
and imports and degree of openness to trade since 1991.
Further, diversification of the export and import basket
and markets have reduced the vulnerability of the economy
to external shocks. India's commitments to the WTO have
also helped India to compete in world markets and strengthen
its external sector.
©
2006 IUP . All Rights Reserved.
Research
Note
Investment
Ratio and Growth
--
B Bhaskara Rao
In
growth and development policy, investment ratio is an important
policy instrument. However, there is no well-defined framework
to determine what should be the investment ratio for a given
growth target. This paper explains the potential of Solow
(1956) and Solow (1957) to explain the relationship between
the target growth rate and investment ratio. Hypothetical
data are used for illustration in the study.
©2006 IUP . All Rights Reserved.
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