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US Defense Expenditure:
Relationships and Projections
-- Bharat Kolluri and Mahmoud Wahab
This paper estimates the relationships between alternative measures of US defense spending and economic
growth and government spending growth. The estimated relationships are derived from a plausible partial
adjustment model that is based on the common practice of multi-year defense contracting and budget requests
and appropriations. An attempt is made to forecast defense consumption spending, defense investment
spending and, hence, aggregate defense spending till 2010, using the alternative forecast methodologies that are
validated in-sample prior to their use in out-of-sample predictions. Two major findings emerge from this study. First,
defense spending in general, is tied more to trends in government spending than economic growth. Second, a
variety of simple linear smoothing moving average forecast models (used individually or in combination) as well
as a partial adjustment model do surprisingly well in historical simulations of all types of defense spending.
© 2009 IUP. All Rights Reserved.
The Political Economics Sideof the J-Curve
-- António Caleiro
About 20 years ago, van der Ploeg analyzed the implications of the J-curve effect for the political
business cycle in a small open economy (van der Ploeg, 1989a). It was then shown that a sudden jump in the
exchange rates on the election day should be observed if the government, in order to maximize its popularity,
explores a J-curve effect. As a way of celebrating this work, a simulation study is presented in this paper, which
confirms the exchange rate overvaluation result a la van der Ploeg.
© 2009 IUP. All Rights Reserved.
An Investigation of the Long-Run
Private Investment in the Asia-Pacific Developing Countries
-- Saten Kumar
This paper estimates a neoclassical investment equation for selected Asia-Pacific developing
countries—Thailand, Philippines, Indonesia, Singapore, Fiji, Samoa and Vanuatu. The Hendry's General-to-Specific (GETS)
approach is used and the results imply that the income elasticity is unity and the interest rate elasticity is significant
with expected sign for all the selected countries.
© 2009 IUP. All Rights Reserved.
India's Export Potential to the
Gulf Cooperation Council : A Gravity Model Exploration
-- Samir Ranjan Pradhan
This paper explores India's export potential to the six-member countries of Gulf Cooperation Council
(GCC) with which a Free Trade Agreement (FTA) is currently under negotiation. Augmented gravity model is
used to analyze India's export flows, and the coefficients thus obtained are incorporated to predict India's
export potential to the GCC. The model is estimated using the Ordinary Least Square (OLS) technique with
panel data. The workhorse gravity model shows that the magnitude of India's export potential is highest with
Oman (3.7 times), followed by Qatar (2.7 times), Bahrain (1.5 times), and Kuwait (1.2 times). Moreover, when
the RTA (Regional Trading Arrangements) dummy takes the value of one, the results show sharp increase in
the magnitude of export potential. However, all the model specifications, consistently show no export
potential with United Arab Emirates (UAE), and Saudi
Arabia. This implies that currently India is overtrading with
UAE and Saudi Arabia, as they are the two largest trading partners of India in the GCC and India's export
basket to these two countries is not diversified and is confined to limited number of items. In addition, the
models using time-specific fixed effects also exhibit favorable trends of India's export potential to the GCC.
© 2009 IUP. All Rights Reserved.
Is Asset Price Relevant in Constructing
Monetary Conditions Index for Indonesia?
-- Wai-Ching Poon
This paper constructs the Monetary Conditions Index (MCI) over the quarterly period 1983:2-2004:4, using
the bounds test approach proposed by Pesaran et
al. (2001). The bounds test evidently reveals long-run
relationship between the real GDP and its determinants, i.e., long-term interest rate, real exchange rate and share prices,
which take into account the interest rate, exchange rate and asset price channels through which the
monetary policy is transmitted. The paper also verifies the stability of the Indonesian output demand function that is
used to construct the augmented MCI. It is observed that the monetary policy stance taken by the Bank
Indonesia corresponds well to the movement of the augmented MCI after the Asian Financial Crisis.
© 2009 IUP. All Rights Reserved.
Macroeconomic Integration
in Asia-Pacific: Common Stochastic Trends and Business Cycle Coherence
-- Enzo Weber
This paper addresses the question of macroeconomic integration in the Asia-Pacific region. Economically,
the analysis is based on the notions of stochastic long-run convergence and business cycle coherence.
The econometric procedure consists of tests for cointegration, the examination of vector error correction
models, different variants of common cycle tests and forecast error variance decompositions. Results in favor of
cyclical synchrony can be partly established, and are even exceeded by the broad evidence for equilibrium
relations. In this domain, several leading countries have been identified.
© 2009 IUP. All Rights Reserved.
Study of Output Convergence
Pattern of BRIC Economies :Application of Fuzzy Mathematics
-- Rakesh Bajaj and Amit Srivastava
The present paper tests the projected convergence pattern of per capita GDP of Brazil, Russia, India and
China (also known as the BRIC economies) using a comparatively new technique, the fuzzy clustering algorithm.
The analysis, based on Goldman Sachs annual report of 2003, shows that by the end of 2050, the projected
per capita GDP of all the four countries will tend towards convergence as compared to 2000. According to
the Report, by the end of 2050, the four countries will emerge as very strong economies of the world and
together they will be greater in terms of GDP than the G6 countries (the US, Japan, the UK, Germany, France and
Italy). In absolute terms, China will be the number one economy, followed by the US at second position and
India at third position.
© 2009 IUP. All Rights Reserved.
Changing Pattern of Rural Livelihood Opportunities and Constraints: A Case of Orissa, India
-- Trilochan Tripathy
This paper makes an attempt to understand the changing pattern of rural livelihood in the state of Orissa in
India. The study reveals that the nature of diversification of household incomes is a consequence of both
diversification of activities among different members of the household, and multiple activities of a single member.
Further, agricultural labor as a livelihood option of rural workforce is losing its importance at a faster rate than any
other option, and the rate is faster in case of female workers compared to the male workers. The greater
association of female workforce and the linkage of farm
and non-farm activities, level of development and accessibility
are intertwined in propagation of the non-farm economic activities in the state. It is the manufacturing activity
in the non-farm sector that has absorbed the maximum number of rural female workers,
which is also slowly decreasing over the years. The additional jobs created in the
non-farm sector have attracted the female labor force more towards the non-farm sector; however the
participation rate of female labor force is very sluggish and confined only to the construction and manufacturing sectors.
In terms of livelihood constraints in the rural economy of Orissa, finance is one of the most powerful
constraints faced by the rural households in accessing the livelihood options in general, but it is more powerful with
respect to accessing the non-farm activities.
© 2009 IUP. All Rights Reserved.
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