Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India

Chetan Ghate, Gerhard Glomm () and Jialu Liu Streeter ()
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Gerhard Glomm: Department of Economics, Indiana University, Indiana
Jialu Liu Streeter: Department of Economics, Allegheny College, Pennsylvania

Asian Development Review, 2016, vol. 33, issue 2, 144-166

Abstract: We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that reduce distortions raise potential growth. We show that the positive effect of a variety of policy reforms on potential growth depends on the extent to which public and private capital are complements or substitutes. We also show that funding more infrastructure investments in both sectors by raising labor income taxes in the agriculture sector raises potential growth.

Keywords: Indian economic growth; misallocation; public capital; structural transformation; two-sector OLG growth models; unbalanced growth (search for similar items in EconPapers)
JEL-codes: H21 O11 O20 O41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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