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The IUP Journal of Applied Economics
ISSN: 0972-6861
A ‘peer reviewed’ journal indexed on Cabell’s Directory,
and also distributed by EBSCO and Proquest Database

July'18

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The IUP Journal of Applied Economics is a quarterly economics journal that analyzes the issues of micro, macro, development and energy economics. IJAE provides research articles on industrial economics, public finance, industry, and agricultural and rural economics.

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  • Development Economics
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The Impact of Currency Appreciation on Role of Monetary Authorities: Evidence from Leading Reserve Holding Countries
Economic Freedom and Labor Income Share in BICS
Foreign Direct Investment and the Macroeconomy in India
Does Government Spending Have a Role in Inflation-Growth Nexus? – Evidence from a Dynamic Time Series Threshold Analysis in Egypt
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Contents
(July 2018)

The Impact of Currency Appreciation on Role of Monetary Authorities: Evidence from Leading Reserve Holding Countries

-- Linkon Mondal

This paper attempts to examine whether there is any fear of currency appreciation among countries which have accumulated foreign exchange reserves beyond what is conventionally required. In this regard, the paper estimates an augmented version of buffer stock model of reserve demand and includes undue appreciation and depreciation of domestic currency as separate explanatory variables. The empirical evidence obtained from a sample of 10 highest reserve holding countries suggests: (i) The motive behind reserve accumulation differs across countries and varies over time; (ii) It is no longer a precautionary balance to absorb shocks; and (iii) The inflow of speculative capital seems to have been a significant factor behind reserve accumulation. More importantly, there is strong evidence of asymmetry in official intervention in the foreign exchange market in the sense that the amount of official purchase of foreign exchange in response to appreciating currency is larger than the amount of selling in response to depreciating currency of the same magnitude. This evidence confirms the fact that high reserve holding countries have the fear of currency appreciation. Although such fear is often attributed to possible export loss, it is largely due to the loss in terms of fall in the value of given stock of reserves due to currency appreciation.

Economic Freedom and Labor Income Share in BICS

--Aadil Ahmad Ganaie, Bandi Kamaiah and N A Khan

The process of development in emerging economies like Brazil, India, China and South Africa (BICS) has an important bearing on the structure of the world economy. With the high potential for growth and presence of large labor force, these economies have affected both the labor and goods market of the world. However, despite many structural changes, these economies have also witnessed the trend of decreasing labor share from the 1980s onwards. The continuing decline is a matter of concern for these economies, considering the local employment structure. The present study investigates whether the adoption of more market supportive institutions (defined in terms of economic freedom) is an important factor responsible for the decline in labor income share. The study uses one- and two-way panel fixed effect model on the data from 2000 to 2014 and the results show that increase in economic freedom leads to a decline in the labor share. It suggests that the labor class does not reap the gains possible because of more economic freedom. For individual areas of economic freedom, the results reveal that the decline in the public sector or government share has a negative impact on the labor’s share. That means the protection enjoyed by labor regarding job protection and wage increase in the public sector has a positive influence on labor’s share in the total value-added. Further, the study finds that both openness and capital-output ratio have a negative impact on labor share. Among the control variables, only the level of democracy has a positive influence on labor share.

Foreign Direct Investment and the Macroeconomy in India

--Pabitra Kumar Jena, Bikash Ranjan Mishra and Vimarsh Padha

The present study seeks to identify the determinants of Foreign Direct Investment (FDI) flows into India, and also to understand the structural paths between FDI inflows and macroeconomic variables. While regression models are estimated for identifying the determinants, Structural Equation Modeling (SEM) has been employed to trace the structural paths. The study, based on monthly data from August 1994 to May 2015, finds that exports, savings with commercial banks, money supply, exchange rate and inflation rate stand out as significant determinants of FDI flows into India after globalization. The study also identifies 19 significant paths between FDI inflows and different macroeconomic variables. Finally, the paper discusses some of the policy suggestions for better FDI flow into India.

Does Government Spending Have a Role in Inflation-Growth Nexus? – Evidence from a Dynamic Time Series Threshold Analysis in Egypt

--Ahmed S Abou-Zaid

Empirical evidence has indicated that there exists a threshold level of inflation, above which economic growth is hindered. Previous literature has shown that this level is around 1-3% in developed countries and 7-11% in developing countries. This paper tries to investigate the relationship between economic growth and inflation in Egypt by estimating the threshold inflation level during the period 1961-2016. As the paper fails to obtain any optimal rate of inflation and this result is in line with those obtained by most studies in the literature, the paper further examines the role of government spending in explaining the nature of the relationship between inflation and economic growth in Egypt.

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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