The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform

Alok Johri and Md Mahbubur Rahman

Department of Economics Working Papers from McMaster University

Abstract: India's relative price of investment rose 44% from 1981 to 1991 and fell 26% from 1991 to 2006. We build a simple DGE model calibrated to Indian data in order to explore the impact of capital import substitution policies and their reform post-1991, in accounting for this rise and fall. Our model delivers a 23% rise before reform and a 28% fall thereafter. GDP per worker was 2.9% lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal and a 64 percentage point reduction in tari rates raised GDP per worker permanently by 17.8%.

Keywords: relative price of investment; policy reform in India (search for similar items in EconPapers)
JEL-codes: E17 E2 O11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2017-08-04, Revised 2017-10-03
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform (2022)
Working Paper: The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2017-12

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