Partial Equilibrium Analysis of Impact of Use of Finance Option for Purchase of Durable Consumer Goods on Indian Economy: A Study in General Equilibrium Framework

Shri Prakash, Shalini Sharma and Arvind Bagati

Bulletin of Political Economy, 2009, vol. 3, issue 2, 171-198

Abstract: This paper has developed two hierarchical models to determine the impact of final demand for consumer durables, particularly purchases with finance, on Indian economy. Model of demand for consumer durables with or without finance is encompassed in revealed preference theory and stochastic framework Logit form of Engel consumption function is used. This is illustrated geometrically to incorporate twin threshold income levels for purchases with or without finance. This model supplements I-O model of impact of consumer durables on the economy. Concept of ‘Static Leontief Trajectory’ is formulated. Two complementary theorems, empirically supported, are its base. This paper has endogenised private final consumption expenditure in input output model. Results show that the purchase of consumer durables with or without finance considerably affects output of all sectors. Output effect varies greatly between sectors but it is maximum for the sectors final demand for the output of which is nonzero. Output effect depends, a great deal on the pattern and strength of backward, forward and residentiary linkages.

Date: 2009
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