Posted by: mulrickillion | February 24, 2012

India’s Growth Spillovers to South Asia

By Ding Ding and Iyabo Masha

International Monetary Fund (IMF), Working Paper No. 12/56, February 2012 —

Summary: This study investigates the role of India’s economy in explaining the observed growth in South Asia, taking into consideration other sources of growth endogenous to the countries in the region. Since a review of key variables indicates that India’s bilateral trade and financial linkages with South Asian countries (SAC) are relatively weak, the paper analyses the spillover effects by focusing on growth more generally with India’s growth as an explanatory variable. The results of the panel growth regressions suggest that India’s growth has good explanatory power for growth in other SAC after 1995.

[An excerpt from the Working Paper reads]:

Since the mid-1990s, the size of the Indian economy has increased nearly twenty-fold in U.S. dollar terms. Real GDP growth averaged 5 percent annually, poverty reduction has been significant, and living conditions have improved in a variety of dimensions—such as life expectancy, infant mortality and years of schooling. At the same time, India’s share in global exports has more than doubled.

In an interdependent world, changes in economic performance in one country could manifest in countries with which it is highly integrated as positive spillovers or adverse exogenous shocks. Various studies have identified trade, financial flows, human capital and terms of trade as key channels through which this takes place. Demand for imports, inputs and final products affect partner countries’ supply of exports and real incomes through the trade channel. Increased demand for imports from partner countries impacts positively domestic production, while higher partner countries’ exports could worsen current account dynamics, and lower the competitiveness of domestically produced competing goods, which could feedback into investment and consumption decisions. Integrated stock markets and cross border financial services often provide a wider pool for the intermediation of financial resources and greater depth to financial markets, and could also be sources of contagion. Access to education and health services in more developed economies could contribute to human capital development and skills accumulation, which feed into higher growth rates. In addition, growth spillovers and exogenous shocks could be transmitted through changes in factor productivity and business confidence from neighboring countries.

Studies have indicated that when a major economy coexists side by side with smaller countries, spillover effects of the major economy’s growth on the smaller economies is often high. Given India’s rapid growth and the size of its economy relative to those of its South Asian neighbors, a strong positive spillover effect could manifest in higher growth for countries in the region. India’s strong performance as a supply chain for the service sector of advanced economy markets is well researched; but there is little or no research into how India’s growth affects the growth of its immediate neighbors. . . .

>>Read the full Working Paper here (wp1256.pdf).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: