A Panel Data Analysis of Taxation in Europe: Social Contributions Matter

- - Morgane Laouenan and Thierry Warin

This article provides an analysis of the taxation structure in Europe, and its possible impact on growth. It is often assumed that a decrease in taxes will improve growth. The study covers the period 1985-2003, the 12 countries belonging to the Eurozone, and details the different categories of taxes across countries. The panel data analysis is based upon an error component model. The only negative relationship between growth and taxes is found when considering the social contributions. In other words, policymakers willing to positively impact their country's growth should concentrate first on the reduction of social contributions.

© 2005 IUP. All Rights Reserved.

Trade Liberalization between Australia, India and South Africa: Prospects for a Dynamic Growth Triangle

- - Mahinda Siriwardana

Australia's trade with India and South Africa has been growing steadily in recent times. These countries have become more liberalized in trade during the last five years and they also play a significant role in the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC). It has been proposed that Australia should take the initiative in forming effective cooperation with India and South Africa for complete free trade. This paper examines the trade links between these three countries and then evaluates quantitatively the likely effects of the establishment of a bilateral free trade agreement (FTA) between them. GTAP (Global Trade Analysis Project) model has been used to quantify the effects of the FTA. The results provide some indication of the magnitude of the welfare gains involved under free trade and shed some light on prospects for trade liberalization in IOR countries.

© 2005 IUP. All Rights Reserved.

Determinants of Foreign Capital: A Dynamic Analysis

- - Jitendra Mahakud and L M Bhole

This article analyzes the various issues relating to foreign capital investment in India and estimates dynamic panel data models more specifically the Generalized Method of Moments (GMM) technique by using data for 300 companies for the period 1984-85 to 2003-04, for empirically identifying the determinants of demand for foreign capital of the private corporate sector in India. The period analysis has also been carried out to gauge the impact of liberalization on the determinants. The paper finds that domestic long-term borrowings ratio, size of the firm, and market risk are the major determinants of the demand for foreign capital of the private corporate sector in India.

© 2005 IUP. All Rights Reserved.

A Study of Performance of Indian Steel Companies during 1999-2003

- - Kolluru Srinivas

The Indian steel industry has been showing tremendous improvements in terms of growth in capacity, production and exports and has become a major competitor in the global arena, thanks to the forces of deregulation and globalization. Keeping in view the current performance, the future looks bright for the domestic steel industry. India will be among the top five consumers of steel by 2010. The primary objective of this study is to measure an overall index of performance across the Indian steel companies based on 11 financial ratios including the profit ratio for each company by using the globally popular methodthe Taxonomic Method. This method is preferred over the parametric methods using flexible functional forms and the Data Envelope Analysis (DEA). The empirical results show that, overall composite index would serve as a better performance indicator than the conventional stand-alone operating profit margin. Statistically speaking, the performance of 11 companies appeared to be converging during 1999-2003. The regression results reveal that the size factorlog (assets)has been dominant. Contrary to conventional expectations the sign of market share shows positive and significant relation with overall performance. This is, perhaps, attributable to the price controls the steel industry has been subjected to for a long time before liberalization. Also, the larger companies are in the public sector except the TISCO. As a consequence, the expected U-shaped relationship between OPM/CPI turned to be counter-intuitively umbrella-shaped.

© 2005 IUP. All Rights Reserved.

Determinants of Government Expenditures in Botswana

- - Christopher Mupimpila

This article examines the debate about the growth of government expenditures in Botswana. It outlines the pattern and rate of government expenditure growth and then presents some empirical findings on the determinants of government expenditures in Botswana during 1980-2000. Previous studies on government expenditure growth in developing countries have identified the determinants of the growth to be expenditures on social welfare, the openness of the economy and growth in military spending. The variables employed in the present study are: National income, the level of monetization, openness of the economy, government revenues and expenditures on social services. The empirical results of this study demonstrate the very high explanatory power of the model. All the variables have the expected signs. The results show that national income, the openness of the economy and the expenditures on social services are the significant variables that determine the growth of government expenditures in Botswana. The findings show that, statistically, expenditure on social services is the most significant determinant of government expenditure growth in Botswana.

© 2005 IUP. All Rights Reserved.