After the "License Raj": Economic Liberalization and Aggregate Private Investment in India

M. Shahe Emran (), M. Imam Alam and Forhad Shilpi
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M. Imam Alam: University of Northern Iowa

Development and Comp Systems from EconWPA

Abstract: Using three alternative models that incorporate the behavior of both credit constrained and unconstrained firms in a theoretically consistent manner, this paper presents evidence on the effects of economic liberalization of 1991 in India. Two robust conclusions emerge from the estimation of the investment function by ARDL approach. First, the response of private investment with respect to the relative cost of capital has increased at least five times after the dismantling of the License Raj. Second, the evidence implies a significant improvement in the technological efficiency of the firms after the liberalization. In contrast, no robust conclusion can be drawn about the severity of the credit constraint faced by the private sector following the liberalization.

Keywords: Private Investment; India; Economic Liberalization; ARDL (search for similar items in EconPapers)
JEL-codes: E22 O11 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-his and nep-mac
Date: Written 2003-05-25
Note: Type of Document - Scientific Word/WinEdt; prepared on PC; to print on HP; pages: 26; figures: included
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