SA071010_The_Analytics_Amitava_Bose

SA071010_The_Analytics_Amitava_Bose - SPECIAL ARTICLE The...

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SPECIAL ARTICLE July 10, 2010 vol xlv no 28 EPW Economic & Political Weekly 64 The Analytics of Changing Growth Rates Amitava Bose, Subhasankar Chattopadhyay A vast amount of research has asked how and why the growth rates in the Indian economy have risen in recent decades. Implicit in much of that literature is the belief that if the growth rate has increased it must be because something underlying has changed – had some parameters embedded in the “structure” of the economy not changed, the growth rate would have been constant. This is, however, a presumption that may not be true. The search for structural “breaks” is the outcome of a preoccupation with steady states and constant rates of growth. To redress the balance this article provides some simple examples of models in which the rate of growth is never constant but changes endogenously over time. The lesson therefore is that changes in the growth rate have no necessary link with changes in the underlying economic regime or economic structure. This is not an India-specific point but is based on a general analytical argument. 1 Introduction T he most hackneyed remark that one can make about I ndia’s growth rate is that it has been changing. The I ndian economy has been growing at a faster pace in re- cent decades than it did earlier. Table 1 gives a snapshot of aver- age growth rates since 1900. Changing the length of the time interval over which the a verage is taken changes the value of the average. This would not have been the case if the underlying actual rate of growth per unit time had remained constant. It is clear that the actual rate of growth has been rising; the longer one looks back the lower the average. These remarks are obvious truths that have little explanatory power. One would like to know what it is that has made improve- ments in the growth rate possible. There is a growing literature that discusses this question for post-Independence India. What is implicit in much of that literature is the belief that if the growth rate has increased it must be because something under- lying has changed. In other words, had some parameters embedded in the “structure” of the economy not changed, the growth rate would have been constant. This is however a presumption that may not be true. The search for “breaks” – e g, breaking away from the “Hindu Rate of Growth” – is the outcome of preoccupation with steady states and constant rates of growth. To redress the balance we provide some simple examples of models in which the rate of growth is never constant but changes endogenously over time. The lesson of this note therefore is that changes in the growth rate have no necessary link with changes in the underlying eco- nomic regime or economic structure. This is not an India-specific point but is based on a general analytical argument.
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SA071010_The_Analytics_Amitava_Bose - SPECIAL ARTICLE The...

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