Negative Influence of Fiscal Subsidies on Environment: Empirical Evidence from Cross-Country Estimation

NIPFP Working Paper 117
[PDF]

Sacchidananda Mukherjee and Debashis Chakraborty
January 2013

Abstract

It has been observed that a number of developed as well as developing countries provide subsidies to their resource-intensive sectors like agriculture, fisheries, manufacturing etc. However, overproduction and consequent pollution as well as overexploitation of natural resources resulting from the provision of input and output subsidies have been a serious threat to environmental sustainability. An area of concern is that subsidies with potentially harmful environmental impacts are not declining in the recent period, despite the ongoing negotiations through the WTO framework and the UN forums. The present analysis attempts to understand the role of government budgetary subsidies on the overall environmental performance through panel data model estimation for a set of seventy four countries over an eleven year period (2000-2010). The empirical findings confirm that a positive relationship between subsidies and environmental degradation exists in a cross-country framework. The analysis notes that the failure to contain provision of subsidies through timely conclusion of the Doha Round negotiations is also posing a serious threat to the global climate change related concerns.

Comovement in business cycles and trade in intermediate goods

NIPFP Working Paper 116
[PDF]

Madhavi Pundit
January 2013

Abstract

Positive correlation between intermediate goods trade and business cycle comovement raises the question of causality. Existing theories propose the direction from trade to comovement, but don't explain positive correlation of trade with TFP comovement, also in the data. My model predicts both positive correlations, and explains potential causality in the reverse direction, i.e. countries might choose trade partners based on business cycle properties. There is greater benefit in trading with positively correlated sources and self-insuring through capital accumulation, when constrained by domestic technology. I provide empirical evidence of this condition by estimating the elasticity of substitution between capital and intermediates.

Does Weak Rupee Matter for India’s Manufacturing Exports?

NIPFP Working Paper 115
[PDF]

N. R. Bhanumurthy and Chandan Sharma
January 2013

Abstract

The role of weak exchange rate in stimulating exports is a foregone conclusion both at the theoretical as well as in empirical literature. This is more so in many of the emerging economies that are pursuing export-led growth strategy and led to currency intervention to contain any appreciation. In this context, this paper tries to empirically re-examine this issue in India as the recent trends does not suggest such relation between exports and exchange rate. The analysis is undertaken at two levels: at macro-aggregate level by using some time series models; and at the micro-firm level from the Indian manufacturing industries. At the macro level, by using both annual and monthly data, this study finds that exchange rate does not have theoretical (positive) relationship with exports. Rather it finds a negative relationship, which is unconventional. Further, it is also found that imports and the import tariffs playing a major role in boosting exports growth in India, thus indicating ‘import-led exports growth’ mechanism. Subsequently, the paper examines the relationship between exports, imports, exchange rate and productivity using a panel of firms from the Indian manufacturing industries. Results indicate that, although imports and exports are inter-linked, import intensity, rather than exchange rate, is a major factor in boosting exports as well as productivity. Hence, this paper argues against currency intervention to maintain weak exchange rate as a policy option for export promotion. Rather, as exchange rates have differential impacts, we argue for sectoral policies, instead of exchange rate intervention, for enhancing productivity and, hence, exports in manufacturing sector.

Property Tax System in India: Problems and Prospects of Reform

NIPFP Working Paper 114
[PDF]

M. Govinda Rao
January 2013

The Global Financial Crisis and Indian Banks: Survival of the Fittest?

NIPFP Working Paper 113
[PDF]

Barry Eichengreen and Poonam Gupta
December 2012

Abstract

The Indian banking system was initially thought to be insulated from the global financial crisis owing to heavy public ownership and cautious management. It was thus a surprise when some banks experienced a deposit flight, as depositors shifted their money toward government-owned banks and specifically toward the State Bank of India, the largest public bank. While there was some tendency for depositors to favour healthier banks and the banks with more stable funding, the reallocation of deposits toward the State Bank of India in particular cannot be explained by these factors alone. Nor can it be explained by the impact of explicit capital injections by the government into some public-sector banks. Rather it appears that the implicit guarantee of the liabilities of the country’s largest public bank dominated other considerations.

The Real Exchange Rate and Export Growth: Are Services Different?

NIPFP Working Paper 112
[PDF]

Barry Eichengreen and Poonam Gupta
December 2012

Abstract

We consider the determinants of exports of services, distinguishing between modern and traditional services. We consider both the growth of export volumes and so-called export surges – periods of rapid sustained export growth. We ask whether the determinants of export growth rates and surges differ between merchandise, traditional services and modern services and whether developing countries are different. Our findings confirm the importance of the real exchange rate for export growth. We find that the effect of the real exchange rate is even stronger for exports of services than exports of goods; it is especially strong for exports of modern services. While the evidence of differential effects between advanced and developing countries is weaker, our results nonetheless suggest that as developing countries shift from exporting primarily commodities and merchandise to exporting traditional and modern services in the course of their development, appropriate policies toward the real exchange rate become even more important.