Arindam Banik and Pradip K Bhaumik
The Rs 60,000 crore agricultural loan waiver by the finance minister has rightly generated widespread debate. The reason goes back to farmers’ debt-related distress and even suicides in India. However, the move has been controversial. If the issue is debt- related misery and distress one must ask why it is so. One can not guarantee that the farmers will not borrow next year. More specifically, long run prospects are sacrificed at the cost of short run gains.
It is established now that the farmer-debtor is generally required to repay his/her debt immediately after the harvest is in. This means that the farmer is trapped in a regressive market mechanism in two ways. First, with no other means to repay the debt, he/she is forced to sell the produce immediately after the harvest – quite often to the creditor or to the creditor's agent – probably at a pre-arranged price or in pre-decided quantities.
Second, sale of crops immediately after the harvest means that the farmer-debtor probably receives less for his/her produce than what he/she could have obtained at a later point in time when the market prices stabilize. As more and more farmer-debtors wish to convert their harvest into cash, the crop prices tend to get further depressed.
While all that has been stated above is true of farmers in general, the case of cash crop farmers deserves special attention. Interestingly, farmers who go for cash crops such as tobacco, sugarcane, or cotton are not the typical small farmers.
They are the ones with relatively large land holdings and risk appetite and for them farming is an act of commerce. The anticipated incentives in the output market are the motivating factors for hard work as well as for high input costs. The results are, however, not always as expected.
During harvest time, supply of crops often overshadows demand and thus price goes down. This is due to the pressure created by both formal and informal lenders for loan repayment immediately after harvest.
As a consequence, not only are marginal input costs higher than the marginal revenue, even average input costs are sometimes higher or just marginally lower than the average revenue, leaving little or no cash surplus for loan servicing.
It is hard to generalize a small farm as one with not more than two hectares of land across the whole of India. Physical land under assured irrigation is much more productive than the area with no assured irrigation. Thus a small farmer with less land but assured irrigation may be financially much better-off than another farmer with much larger land holding but no assured irrigation.
Take the case of Eastern India and some parts of Southern India. The basic unit for organizing production in the rural areas is either the farm or the village, depending on the way in which rural society is structured. In this region agriculture is characterized by small farms in alluvial lowlands, too many people on too little land, production largely for subsistence, and a heavy dependence on cereals and other food staples. Farming with simple handheld tools or ploughs pulled by draft animals is very common. Many farmers are owner-tenants and tenants.
Rice, usually grown under wet conditions, is the staple food crop in this region. Controlled irrigation facilities are poorly developed, yields are often low, and double-cropping (planting and harvesting two crops in one calendar year) is not universally practiced. Although high-yield varieties of wet rice have been introduced since the 1960s, this has not increased production as predicted.
In Northern India irrigation schemes have helped stabilize annual yields and increase overall production, but the average rice yield per hectare in the mid-1990s was only about half that of Japan. Nevertheless, Asian countries produce about 90 percent of the world’s rice. China and India alone account for nearly 60 percent of the world total.
The average rice yield is 2.9 tonnes per hectare in India. In comparison, average rice yield is 6.8 tonnes per hectare in Republic of Korea, 6.2 tonnes in Japan, 6.3 in China, 4.3 in Indonesia, and 3.8 in DPR Korea. A central issue is therefore why productivity has remained so low in India particularly in the eastern region despite availability of modern rice technology.
Experts argue that the above differences in yield are due to poor water management. Irrigation, drainage and flood control investments can alter the water regime and in the process the plight of millions of small farmers. In other words, the two issues are inter-related, one with excess water regime and the other with shortage of water regime. Together, they constitute the concept of water management. The high magnitude of poverty in this region is partly explained by poor water management.
Admittedly, achieving food security has been the overriding goal of agricultural policy in India. The introduction and rapid spread of high-yielding rice and wheat varieties in the late 1960s and early 1970s resulted in steady output growth for foodgrains. Public investment in irrigation and other rural infrastructure and research and extension, together with improved crop production practices, has significantly helped to expand production and stocks of foodgrains.
However, success story due to Green Revolution is waning now. Public investments in agriculture are declining, and the annual increment to gross capital formation in agriculture is now lower than in the early 1980s. This trend is same across all states in India, not just the poorer ones. More interestingly, increasing shares of total public expenditure on agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for example), rather than to productivity-enhancing investments such as research and public investment in irrigation. The share of input subsidies in public expenditure increased from 44 per cent in the early 1980s to 83 per cent by 1990. Private investment in agriculture has increased modestly in recent years, but not enough to fill the gap left by the decrease in public spending.
The economy is transforming and in the process this has created shortages in foodgrains in order to fulfill the demand of new high value agriculture –with fast-growing urban incomes. Thus we need investment to create more fertile land and water. Otherwise the success story of green revolution may disappear shortly. Unfortunately, the agricultural loan waiver would hardly be used to create these investments.
Friday, March 21, 2008
Sunday, January 20, 2008
Skill-biased technological change and quality of education in India
Arindam Banik and Pradip K Bhaumik
The geographical contours of global production of goods and services have seen significant shifts in recent times. This has been caused as much by forces of globalization as by technological changes. In fact, the interaction of the two have caused impacts which are an order of magnitude greater than that of either alone. While globalization has made almost all product markets and all factor markets except labour global, technological change is bringing equally massive upheavals in its wake – all of which is still not fully understood. In the midst of such massive changes, the immobility of labour will perhaps continue and all our policy decisions will have to be based on this given feature of the international political economy for the foreseeable future although even fewer services will need to be produced locally.
Most newer technologies entering the market through newer products as well as newer processes are skill-biased in the sense that they use skilled workers more intensively than the older technology. Economists have found that adoption of new technology is affected by relative supply of skilled workers in the region – regions having a higher supply are likely to be quicker in new technology adoption. Also, the real wages of skilled workers are expected to increase as new skill-biased technology is adopted whereas the wages of unskilled workers may remain unaffected or even fall. The issue of supply of skilled labour has therefore been rendered a subject of immense interest in recent time largely due to the rising inequality in the relative wages of skilled and unskilled labour.
At the firm level or even at the level of the economy, new technology can be developed endogenously through innovation. New technology could also be developed exogenously and adopted later in a local firm. As mentioned earlier, the market for technology is slowly emerging as a global market and newer technologies are improving the product quality, improving productivity and in many cases have superior capabilities. To survive in globalized markets firms have no option but to use global technologies. Being skill-biased, the new technologies have bred increased wage inequalities at household level as well as regional level in the Indian context.
It is observed that new technology accompanies certain forms of inward investment which also brings new ideas and processes to a country. But at the initial stage it benefits the relatively skilled and consequently the relatively well-off. Accordingly, higher-skilled people gain by way of better jobs and higher wages at the expense of the lower-skilled. As a result, the adoption of new technology furthers the wage divide between the skilled and the unskilled. Interestingly, the removal of trade barriers has reduced inequality of different kinds including the skill inequality. Incidentally, with foreign direct investment, the increasing income inequality among various skill levels is emerging as a source of concern.
For rich economies, the net outflows of FDI tend to reduce the relative wages of lower skilled workers, while in poor economies inflows of FDI benefit the highly-skilled. This is also prevalent in the Indian context. For example, a company shifting a call centre from a developed economy to India aggravates inequality in both the economies.
The anti-globalisation lobby will then jump into recommending the policy prescription through protectionism. Such policies may be harmful for both the countries. The developed country firms prohibited from pursuing FDI cannot guarantee long-term employment to uncompetitive workers and in fact may endanger their own survival, the consumers of their product or services will have reduced purchasing power as they buy the same product or service at higher than global prices. Similarly, the relatively poor country stopped from receiving the FDI would have lost the chance of receiving investment, creating output and employment. So suppressing FDI or technological change may not be an ideal case and other options to reduce the wage divide may be called for.
One such option would be to increase the supply of skilled workers and a prerequisite for this would be to raise the general educational standard. In general, the level is below the performance required to integrate entrants to the labour force. Productivity levels in India are generally low partly explained by ineffective education. The fact that the poor have low levels of education in India highlights the need to address educational issues. Let us not forget that primary education generates the highest rates of return; secondary level has lower returns while the tertiary level has returns higher than that of the secondary level.
Experts argue that skill-biased technological change is responsible for increasing inequality within the top portions of the income distribution. Evidently, most of the growth in inequality between the highest and lowest earners is due to poor educational performance of the unskilled and their quality available in the market. At the household level, ample evidence reveals that the poor face credit constraints which prevent them from investing optimally in their children's education. But this is only part of the story.
On the supply side, the government is equally to be blamed. In the Indian context mostly the government educational institutions are responsible for providing quality education from basic to higher educational level. In general terms they are abysmally poor. At the school level, the difference between the government schools and the private ones is too glaring to be emphasised. Similarly, although there are private institutions offering tertiary education, the regulating bodies are all government controlled. Research and publications wise, the performance of the teachers are abysmally poor even in the leading engineering and management institutes. One will have to struggle hard to find an Indian educational institute among the top 250 in the world. In future the country must compete through the quality of her human capital, her innovation and her research and development. Sound educational institutions will be a basic premise for meeting the challenges of skill-biased technologies.
At the primary level the story is even more pathetic. It is not just at the top of the ladder that the rungs are missing – a significant number of schools lack the most basic infrastructure, let alone access to the Internet. In addition non-availability of quality staff aggravates the situation. If we do not quickly upgrade our educational institutions, the demographic advantage that we proclaim so loudly may suddenly appear to be a burden.
The geographical contours of global production of goods and services have seen significant shifts in recent times. This has been caused as much by forces of globalization as by technological changes. In fact, the interaction of the two have caused impacts which are an order of magnitude greater than that of either alone. While globalization has made almost all product markets and all factor markets except labour global, technological change is bringing equally massive upheavals in its wake – all of which is still not fully understood. In the midst of such massive changes, the immobility of labour will perhaps continue and all our policy decisions will have to be based on this given feature of the international political economy for the foreseeable future although even fewer services will need to be produced locally.
Most newer technologies entering the market through newer products as well as newer processes are skill-biased in the sense that they use skilled workers more intensively than the older technology. Economists have found that adoption of new technology is affected by relative supply of skilled workers in the region – regions having a higher supply are likely to be quicker in new technology adoption. Also, the real wages of skilled workers are expected to increase as new skill-biased technology is adopted whereas the wages of unskilled workers may remain unaffected or even fall. The issue of supply of skilled labour has therefore been rendered a subject of immense interest in recent time largely due to the rising inequality in the relative wages of skilled and unskilled labour.
At the firm level or even at the level of the economy, new technology can be developed endogenously through innovation. New technology could also be developed exogenously and adopted later in a local firm. As mentioned earlier, the market for technology is slowly emerging as a global market and newer technologies are improving the product quality, improving productivity and in many cases have superior capabilities. To survive in globalized markets firms have no option but to use global technologies. Being skill-biased, the new technologies have bred increased wage inequalities at household level as well as regional level in the Indian context.
It is observed that new technology accompanies certain forms of inward investment which also brings new ideas and processes to a country. But at the initial stage it benefits the relatively skilled and consequently the relatively well-off. Accordingly, higher-skilled people gain by way of better jobs and higher wages at the expense of the lower-skilled. As a result, the adoption of new technology furthers the wage divide between the skilled and the unskilled. Interestingly, the removal of trade barriers has reduced inequality of different kinds including the skill inequality. Incidentally, with foreign direct investment, the increasing income inequality among various skill levels is emerging as a source of concern.
For rich economies, the net outflows of FDI tend to reduce the relative wages of lower skilled workers, while in poor economies inflows of FDI benefit the highly-skilled. This is also prevalent in the Indian context. For example, a company shifting a call centre from a developed economy to India aggravates inequality in both the economies.
The anti-globalisation lobby will then jump into recommending the policy prescription through protectionism. Such policies may be harmful for both the countries. The developed country firms prohibited from pursuing FDI cannot guarantee long-term employment to uncompetitive workers and in fact may endanger their own survival, the consumers of their product or services will have reduced purchasing power as they buy the same product or service at higher than global prices. Similarly, the relatively poor country stopped from receiving the FDI would have lost the chance of receiving investment, creating output and employment. So suppressing FDI or technological change may not be an ideal case and other options to reduce the wage divide may be called for.
One such option would be to increase the supply of skilled workers and a prerequisite for this would be to raise the general educational standard. In general, the level is below the performance required to integrate entrants to the labour force. Productivity levels in India are generally low partly explained by ineffective education. The fact that the poor have low levels of education in India highlights the need to address educational issues. Let us not forget that primary education generates the highest rates of return; secondary level has lower returns while the tertiary level has returns higher than that of the secondary level.
Experts argue that skill-biased technological change is responsible for increasing inequality within the top portions of the income distribution. Evidently, most of the growth in inequality between the highest and lowest earners is due to poor educational performance of the unskilled and their quality available in the market. At the household level, ample evidence reveals that the poor face credit constraints which prevent them from investing optimally in their children's education. But this is only part of the story.
On the supply side, the government is equally to be blamed. In the Indian context mostly the government educational institutions are responsible for providing quality education from basic to higher educational level. In general terms they are abysmally poor. At the school level, the difference between the government schools and the private ones is too glaring to be emphasised. Similarly, although there are private institutions offering tertiary education, the regulating bodies are all government controlled. Research and publications wise, the performance of the teachers are abysmally poor even in the leading engineering and management institutes. One will have to struggle hard to find an Indian educational institute among the top 250 in the world. In future the country must compete through the quality of her human capital, her innovation and her research and development. Sound educational institutions will be a basic premise for meeting the challenges of skill-biased technologies.
At the primary level the story is even more pathetic. It is not just at the top of the ladder that the rungs are missing – a significant number of schools lack the most basic infrastructure, let alone access to the Internet. In addition non-availability of quality staff aggravates the situation. If we do not quickly upgrade our educational institutions, the demographic advantage that we proclaim so loudly may suddenly appear to be a burden.
Thursday, December 27, 2007
Understanding Stock Market Crash in May, 2006
The financial sector constituting of banks and the securities markets finance economic growth as they channelise savings to investments and thereby decouple these two activities. But, Banks and the Securities Markets are two competing mechanisms to channelise Savings to Investments. The banks have always managed to score over the Securities market, keeping the risk averse psychology of the Indian investor in mind, in terms of guaranteed return and low risk.
On the other hand, the securities markets score over banks in terms of allocation efficiency, as it allocates savings to those investments which have potential to yield higher returns. This inevitably leads to higher returns to savers on their savings and higher productivity on investments to enterprises. Hence to the extent economic growth depends on the rate of return on investments, securities market promotes economic growth.
The Sensex has shown high volatility since the start of the present bull run (March 2003). In the recent times, in the month of May 2006, the BSE Sensex lost 1705 points and the BSE lost around $100 Billion in market capitalization. The Net FII for the same month in BSE was an outflow of Rs. 2488 Crores. During the same month, the Mutual Funds reported a drop in their Assets under Management by around Rs. 45.17 Billion. U.S. Federal Interest Rate, FII Flow, Overheated commodities market, Global Meltdown of the Capital markets were some of the reasons put forth by many analysts for the Sensex plunge of May, 2006. According to recent estimates (as on October 5, 2006), the current foreign exchange reserves are around $150 Billion and the current market value of the FII portfolio is roughly $130 Billion dollars. These astounding figures not only put a big question mark on the stability of the returns of the Indian Capital market, they also add on to the uncertainty about the sustainability of the Indian Growth Story.
Literatures on the empirical investigation about the impact of foreign interest rates on the
economy of emerging markets are now documented. It is thus possible to understand the episodes in the Indian context. On introducing a shock to the Federal Interest Rate an immediate response from the MSCI (Morgan Stanley Capital Index) Index is witnessed. The American Indices have a substantial percentage in the MSCI world index and hence, any shock in the federal rate would effect the domestic US indices and hence the MSCI World Index. The Indian government also reacts in coherence and hence, a significant effect in the MIBOR (Mumbai Interbank Offer rate) can be noticed with the effect staying up to 18-20 months. As interest rates and inflation go hand in hand, even WPI shows a significant reaction to the shock with effect tapering off only after 18 months. Exchange rate, being a managed float, does not show a very significant change but even for this variable, the effect tapers to zero only around the 16th month. Due to the effect on the domestic macro-economic variables, the Index of Industrial Production also shows a significant reaction but the effect on this variable is the shortest lived with the effect minimizing from the 8th month. Finally, it can be viewed that the Sensex also shows a significant response to the shock in US Federal Interest Rate and this can be attributed to the effect of the macro-economic variables on the Capital markets.
It is also possible to study the causes of variation (due the above mentioned variables) in the Sensex returns. The Impulse response functions showed that the shock in the US federal interest rate causes a change in Indian macro-economic variables such as MIBOR, WPI, Exchange Rate and the Index of Industrial Production. The shock introduced to the federal interest rate also produced a significant response from both the BSE Sensex as well as the MSCI World Index. T`he above shows that the MSCI Return followed by the WPI has the maximum effect on the variation of the BSE Sensex. Federal Interest Rate and MIBOR have a gradual and a similar effect on the variation of the BSE Sensex. The exchange rate also has significant effect. The Index of Industrial Production has the least effect on the variation in the BSE Sensex returns.
Hence, it appears that the variation in the Indian Capital markets and the various macro-economic components can be explained by the movements in the US Federal Interest Rate and the World Indices.
The above investigation, of the effect of U.S. economy and Globalization on the Indian economy, can have a plethora of policy implications for India. There can be two schools of thought on this issue as there have been in the past for the effect of globalization. US is the largest and most technologically powerful economy in the world, with a per capita GDP of $42,000. Its GDP in terms of PPP is the highest in the world at $12.36 trillion followed by European Union. India ranks at 6th on this list behind China and Japan. According to the BRIC report (Wilson et al, 2003), of the G6 only U.S. and Japan will be among the top 6 economies by 2050. Currently, India’s export to US has the maximum share of the total Indian exports. The current and the past governments have tried to maintain as well enhance the relationship with U.S. in order to maintain the export led growth and also since, the main growth in the world consumption is U.S. driven (currently, 40% of the total consumer spending in the world is by U.S.).
On the other hand, an overdependence on the U.S. market can have dire implications on India’s growth. The US Federal interest rate has been on the upswing since January 2004, where it was around 1%, to the present where it is around 5.25% (September , 2006). U.S. ranks second in terms of cumulative Foreign Direct Investment (around $5.3 Billion from August, 1991 to July, 2006) after Mauritius in India and also accounts for around 40.5% of the total $25.3 billion FII flow (as on June 30, 2004) into India. May 2006 saw the biggest plunge ever in the Indian Capital markets, which is said to be fuelled by FII outflow (Rs. 8.2 Billion net outflow for May, 2006) following an increase in the U.S. federal interest rate, where a lot of Indians lost their lifetime savings. Conversely, only around $2 billion (up to 2004-2005) direct investments from India are to U.S., which is the maximum outward Indian investments followed by Russia and Mauritius. This, hence, brings in the concept of Immiserizing growth that whether the current growth experienced by the Indian economy is working towards social welfare or not and also questions the sustainability and equitability of the growth experienced in the recent years.
The government needs to take quick as well as gradual policy decisions to make the Indian growth story more domestic sector (Infrastructure, industry etc.) driven than external sector (Trade flow, exchange rates, etc.) driven. The need of the hour is to make the Indian growth story more inclusive. The current Bull Run of the Sensex (post May 2006-November ,2006) has seen only three sectors in the positive zone – Telecom, Infrastructure and Banking. The government needs to formulate policies so as to increase the purchasing power of the Indian consumer. Increase in the domestic demand would help the existing companies to achieve the economies of scale and would also attract new businesses to mushroom. To increase the per-capita consumption expenditure the government can either work towards increasing employment or take some liberal steps for the financial services sector. If the financial services sector policies are made more liberal, new businesses would be encouraged and also consumer demand shall increase (owing to availability of credit at easier terms), thus allowing the existing industries to increase both their bottom line as well as the top line and hence, expand. The government also needs to increase the accessibility and coverage of credit and banking services to the bottom of the pyramid. Out of the total loans passed on by the Banks only 8% are consumer loans compared to 13% and 26% in other developing nations like Thailand and Malaysia. Emphasizing on growth in Domestic savings is also imperative for sustainable and inclusive growth. In 2005-2006, 46% of the household assets were in the form of Bank deposits while around 20% were in real estate and only 5% as shares and debentures. The government needs to take steps for increasing the domestic savings (In 2002-2003, Household savings were 22.65% of the Indian GDP)so that the funds generated can be channelised to the productive sectors to attain the desired growth objectives. This would also help the government achieve the objective of increasing the employment prospects and this further drives in the argument of increasing the financial service sector penetration to attain inclusive growth.
Every developed or developing nation directly or indirectly is dependent on the U.S. because of the consumer base it has. India, cannot escape the effect of globalization and neither can totally immunize itself from it. But, it can learn from the boom-bust stories of the other emerging countries and hence, develop policies and framework to ensure that the higher growth is more inclusive so as to make the growth story sustainable. But, the Indian investor as well as the government would need to brace itself for any harsh reaction following any of the policy decisions targeted towards increased inclusive growth and reduced participation from the foreign institutional investors (Recent Thailand case in context). But, till than one can only expect an appreciating rupee and a Sensex scaling newer heights and also, more volatility as the sensex moves with the mood swings of these Institutional investors.
On the other hand, the securities markets score over banks in terms of allocation efficiency, as it allocates savings to those investments which have potential to yield higher returns. This inevitably leads to higher returns to savers on their savings and higher productivity on investments to enterprises. Hence to the extent economic growth depends on the rate of return on investments, securities market promotes economic growth.
The Sensex has shown high volatility since the start of the present bull run (March 2003). In the recent times, in the month of May 2006, the BSE Sensex lost 1705 points and the BSE lost around $100 Billion in market capitalization. The Net FII for the same month in BSE was an outflow of Rs. 2488 Crores. During the same month, the Mutual Funds reported a drop in their Assets under Management by around Rs. 45.17 Billion. U.S. Federal Interest Rate, FII Flow, Overheated commodities market, Global Meltdown of the Capital markets were some of the reasons put forth by many analysts for the Sensex plunge of May, 2006. According to recent estimates (as on October 5, 2006), the current foreign exchange reserves are around $150 Billion and the current market value of the FII portfolio is roughly $130 Billion dollars. These astounding figures not only put a big question mark on the stability of the returns of the Indian Capital market, they also add on to the uncertainty about the sustainability of the Indian Growth Story.
Literatures on the empirical investigation about the impact of foreign interest rates on the
economy of emerging markets are now documented. It is thus possible to understand the episodes in the Indian context. On introducing a shock to the Federal Interest Rate an immediate response from the MSCI (Morgan Stanley Capital Index) Index is witnessed. The American Indices have a substantial percentage in the MSCI world index and hence, any shock in the federal rate would effect the domestic US indices and hence the MSCI World Index. The Indian government also reacts in coherence and hence, a significant effect in the MIBOR (Mumbai Interbank Offer rate) can be noticed with the effect staying up to 18-20 months. As interest rates and inflation go hand in hand, even WPI shows a significant reaction to the shock with effect tapering off only after 18 months. Exchange rate, being a managed float, does not show a very significant change but even for this variable, the effect tapers to zero only around the 16th month. Due to the effect on the domestic macro-economic variables, the Index of Industrial Production also shows a significant reaction but the effect on this variable is the shortest lived with the effect minimizing from the 8th month. Finally, it can be viewed that the Sensex also shows a significant response to the shock in US Federal Interest Rate and this can be attributed to the effect of the macro-economic variables on the Capital markets.
It is also possible to study the causes of variation (due the above mentioned variables) in the Sensex returns. The Impulse response functions showed that the shock in the US federal interest rate causes a change in Indian macro-economic variables such as MIBOR, WPI, Exchange Rate and the Index of Industrial Production. The shock introduced to the federal interest rate also produced a significant response from both the BSE Sensex as well as the MSCI World Index. T`he above shows that the MSCI Return followed by the WPI has the maximum effect on the variation of the BSE Sensex. Federal Interest Rate and MIBOR have a gradual and a similar effect on the variation of the BSE Sensex. The exchange rate also has significant effect. The Index of Industrial Production has the least effect on the variation in the BSE Sensex returns.
Hence, it appears that the variation in the Indian Capital markets and the various macro-economic components can be explained by the movements in the US Federal Interest Rate and the World Indices.
The above investigation, of the effect of U.S. economy and Globalization on the Indian economy, can have a plethora of policy implications for India. There can be two schools of thought on this issue as there have been in the past for the effect of globalization. US is the largest and most technologically powerful economy in the world, with a per capita GDP of $42,000. Its GDP in terms of PPP is the highest in the world at $12.36 trillion followed by European Union. India ranks at 6th on this list behind China and Japan. According to the BRIC report (Wilson et al, 2003), of the G6 only U.S. and Japan will be among the top 6 economies by 2050. Currently, India’s export to US has the maximum share of the total Indian exports. The current and the past governments have tried to maintain as well enhance the relationship with U.S. in order to maintain the export led growth and also since, the main growth in the world consumption is U.S. driven (currently, 40% of the total consumer spending in the world is by U.S.).
On the other hand, an overdependence on the U.S. market can have dire implications on India’s growth. The US Federal interest rate has been on the upswing since January 2004, where it was around 1%, to the present where it is around 5.25% (September , 2006). U.S. ranks second in terms of cumulative Foreign Direct Investment (around $5.3 Billion from August, 1991 to July, 2006) after Mauritius in India and also accounts for around 40.5% of the total $25.3 billion FII flow (as on June 30, 2004) into India. May 2006 saw the biggest plunge ever in the Indian Capital markets, which is said to be fuelled by FII outflow (Rs. 8.2 Billion net outflow for May, 2006) following an increase in the U.S. federal interest rate, where a lot of Indians lost their lifetime savings. Conversely, only around $2 billion (up to 2004-2005) direct investments from India are to U.S., which is the maximum outward Indian investments followed by Russia and Mauritius. This, hence, brings in the concept of Immiserizing growth that whether the current growth experienced by the Indian economy is working towards social welfare or not and also questions the sustainability and equitability of the growth experienced in the recent years.
The government needs to take quick as well as gradual policy decisions to make the Indian growth story more domestic sector (Infrastructure, industry etc.) driven than external sector (Trade flow, exchange rates, etc.) driven. The need of the hour is to make the Indian growth story more inclusive. The current Bull Run of the Sensex (post May 2006-November ,2006) has seen only three sectors in the positive zone – Telecom, Infrastructure and Banking. The government needs to formulate policies so as to increase the purchasing power of the Indian consumer. Increase in the domestic demand would help the existing companies to achieve the economies of scale and would also attract new businesses to mushroom. To increase the per-capita consumption expenditure the government can either work towards increasing employment or take some liberal steps for the financial services sector. If the financial services sector policies are made more liberal, new businesses would be encouraged and also consumer demand shall increase (owing to availability of credit at easier terms), thus allowing the existing industries to increase both their bottom line as well as the top line and hence, expand. The government also needs to increase the accessibility and coverage of credit and banking services to the bottom of the pyramid. Out of the total loans passed on by the Banks only 8% are consumer loans compared to 13% and 26% in other developing nations like Thailand and Malaysia. Emphasizing on growth in Domestic savings is also imperative for sustainable and inclusive growth. In 2005-2006, 46% of the household assets were in the form of Bank deposits while around 20% were in real estate and only 5% as shares and debentures. The government needs to take steps for increasing the domestic savings (In 2002-2003, Household savings were 22.65% of the Indian GDP)so that the funds generated can be channelised to the productive sectors to attain the desired growth objectives. This would also help the government achieve the objective of increasing the employment prospects and this further drives in the argument of increasing the financial service sector penetration to attain inclusive growth.
Every developed or developing nation directly or indirectly is dependent on the U.S. because of the consumer base it has. India, cannot escape the effect of globalization and neither can totally immunize itself from it. But, it can learn from the boom-bust stories of the other emerging countries and hence, develop policies and framework to ensure that the higher growth is more inclusive so as to make the growth story sustainable. But, the Indian investor as well as the government would need to brace itself for any harsh reaction following any of the policy decisions targeted towards increased inclusive growth and reduced participation from the foreign institutional investors (Recent Thailand case in context). But, till than one can only expect an appreciating rupee and a Sensex scaling newer heights and also, more volatility as the sensex moves with the mood swings of these Institutional investors.
Understanding Stock Market Crash in May, 2006
The financial sector constituting of banks and the securities markets finance economic growth as they channelise savings to investments and thereby decouple these two activities. But, Banks and the Securities Markets are two competing mechanisms to channelise Savings to Investments. The banks have always managed to score over the Securities market, keeping the risk averse psychology of the Indian investor in mind, in terms of guaranteed return and low risk.
On the other hand, the securities markets score over banks in terms of allocation efficiency, as it allocates savings to those investments which have potential to yield higher returns. This inevitably leads to higher returns to savers on their savings and higher productivity on investments to enterprises. Hence to the extent economic growth depends on the rate of return on investments, securities market promotes economic growth.
The Sensex has shown high volatility since the start of the present bull run (March 2003). In the recent times, in the month of May 2006, the BSE Sensex lost 1705 points and the BSE lost around $100 Billion in market capitalization. The Net FII for the same month in BSE was an outflow of Rs. 2488 Crores. During the same month, the Mutual Funds reported a drop in their Assets under Management by around Rs. 45.17 Billion. U.S. Federal Interest Rate, FII Flow, Overheated commodities market, Global Meltdown of the Capital markets were some of the reasons put forth by many analysts for the Sensex plunge of May, 2006. According to recent estimates (as on October 5, 2006), the current foreign exchange reserves are around $150 Billion and the current market value of the FII portfolio is roughly $130 Billion dollars. These astounding figures not only put a big question mark on the stability of the returns of the Indian Capital market, they also add on to the uncertainty about the sustainability of the Indian Growth Story.
Literatures on the empirical investigation about the impact of foreign interest rates on the
economy of emerging markets are now documented. It is thus possible to understand the episodes in the Indian context. On introducing a shock to the Federal Interest Rate an immediate response from the MSCI (Morgan Stanley Capital Index) Index is witnessed. The American Indices have a substantial percentage in the MSCI world index and hence, any shock in the federal rate would effect the domestic US indices and hence the MSCI World Index. The Indian government also reacts in coherence and hence, a significant effect in the MIBOR (Mumbai Interbank Offer rate) can be noticed with the effect staying up to 18-20 months. As interest rates and inflation go hand in hand, even WPI shows a significant reaction to the shock with effect tapering off only after 18 months. Exchange rate, being a managed float, does not show a very significant change but even for this variable, the effect tapers to zero only around the 16th month. Due to the effect on the domestic macro-economic variables, the Index of Industrial Production also shows a significant reaction but the effect on this variable is the shortest lived with the effect minimizing from the 8th month. Finally, it can be viewed that the Sensex also shows a significant response to the shock in US Federal Interest Rate and this can be attributed to the effect of the macro-economic variables on the Capital markets.
It is also possible to study the causes of variation (due the above mentioned variables) in the Sensex returns. The Impulse response functions showed that the shock in the US federal interest rate causes a change in Indian macro-economic variables such as MIBOR, WPI, Exchange Rate and the Index of Industrial Production. The shock introduced to the federal interest rate also produced a significant response from both the BSE Sensex as well as the MSCI World Index. T`he above shows that the MSCI Return followed by the WPI has the maximum effect on the variation of the BSE Sensex. Federal Interest Rate and MIBOR have a gradual and a similar effect on the variation of the BSE Sensex. The exchange rate also has significant effect. The Index of Industrial Production has the least effect on the variation in the BSE Sensex returns.
Hence, it appears that the variation in the Indian Capital markets and the various macro-economic components can be explained by the movements in the US Federal Interest Rate and the World Indices.
The above investigation, of the effect of U.S. economy and Globalization on the Indian economy, can have a plethora of policy implications for India. There can be two schools of thought on this issue as there have been in the past for the effect of globalization. US is the largest and most technologically powerful economy in the world, with a per capita GDP of $42,000. Its GDP in terms of PPP is the highest in the world at $12.36 trillion followed by European Union. India ranks at 6th on this list behind China and Japan. According to the BRIC report (Wilson et al, 2003), of the G6 only U.S. and Japan will be among the top 6 economies by 2050. Currently, India’s export to US has the maximum share of the total Indian exports. The current and the past governments have tried to maintain as well enhance the relationship with U.S. in order to maintain the export led growth and also since, the main growth in the world consumption is U.S. driven (currently, 40% of the total consumer spending in the world is by U.S.).
On the other hand, an overdependence on the U.S. market can have dire implications on India’s growth. The US Federal interest rate has been on the upswing since January 2004, where it was around 1%, to the present where it is around 5.25% (September , 2006). U.S. ranks second in terms of cumulative Foreign Direct Investment (around $5.3 Billion from August, 1991 to July, 2006) after Mauritius in India and also accounts for around 40.5% of the total $25.3 billion FII flow (as on June 30, 2004) into India. May 2006 saw the biggest plunge ever in the Indian Capital markets, which is said to be fuelled by FII outflow (Rs. 8.2 Billion net outflow for May, 2006) following an increase in the U.S. federal interest rate, where a lot of Indians lost their lifetime savings. Conversely, only around $2 billion (up to 2004-2005) direct investments from India are to U.S., which is the maximum outward Indian investments followed by Russia and Mauritius. This, hence, brings in the concept of Immiserizing growth that whether the current growth experienced by the Indian economy is working towards social welfare or not and also questions the sustainability and equitability of the growth experienced in the recent years.
The government needs to take quick as well as gradual policy decisions to make the Indian growth story more domestic sector (Infrastructure, industry etc.) driven than external sector (Trade flow, exchange rates, etc.) driven. The need of the hour is to make the Indian growth story more inclusive. The current Bull Run of the Sensex (post May 2006-November ,2006) has seen only three sectors in the positive zone – Telecom, Infrastructure and Banking. The government needs to formulate policies so as to increase the purchasing power of the Indian consumer. Increase in the domestic demand would help the existing companies to achieve the economies of scale and would also attract new businesses to mushroom. To increase the per-capita consumption expenditure the government can either work towards increasing employment or take some liberal steps for the financial services sector. If the financial services sector policies are made more liberal, new businesses would be encouraged and also consumer demand shall increase (owing to availability of credit at easier terms), thus allowing the existing industries to increase both their bottom line as well as the top line and hence, expand. The government also needs to increase the accessibility and coverage of credit and banking services to the bottom of the pyramid. Out of the total loans passed on by the Banks only 8% are consumer loans compared to 13% and 26% in other developing nations like Thailand and Malaysia. Emphasizing on growth in Domestic savings is also imperative for sustainable and inclusive growth. In 2005-2006, 46% of the household assets were in the form of Bank deposits while around 20% were in real estate and only 5% as shares and debentures. The government needs to take steps for increasing the domestic savings (In 2002-2003, Household savings were 22.65% of the Indian GDP)so that the funds generated can be channelised to the productive sectors to attain the desired growth objectives. This would also help the government achieve the objective of increasing the employment prospects and this further drives in the argument of increasing the financial service sector penetration to attain inclusive growth.
Every developed or developing nation directly or indirectly is dependent on the U.S. because of the consumer base it has. India, cannot escape the effect of globalization and neither can totally immunize itself from it. But, it can learn from the boom-bust stories of the other emerging countries and hence, develop policies and framework to ensure that the higher growth is more inclusive so as to make the growth story sustainable. But, the Indian investor as well as the government would need to brace itself for any harsh reaction following any of the policy decisions targeted towards increased inclusive growth and reduced participation from the foreign institutional investors (Recent Thailand case in context). But, till than one can only expect an appreciating rupee and a Sensex scaling newer heights and also, more volatility as the sensex moves with the mood swings of these Institutional investors.
On the other hand, the securities markets score over banks in terms of allocation efficiency, as it allocates savings to those investments which have potential to yield higher returns. This inevitably leads to higher returns to savers on their savings and higher productivity on investments to enterprises. Hence to the extent economic growth depends on the rate of return on investments, securities market promotes economic growth.
The Sensex has shown high volatility since the start of the present bull run (March 2003). In the recent times, in the month of May 2006, the BSE Sensex lost 1705 points and the BSE lost around $100 Billion in market capitalization. The Net FII for the same month in BSE was an outflow of Rs. 2488 Crores. During the same month, the Mutual Funds reported a drop in their Assets under Management by around Rs. 45.17 Billion. U.S. Federal Interest Rate, FII Flow, Overheated commodities market, Global Meltdown of the Capital markets were some of the reasons put forth by many analysts for the Sensex plunge of May, 2006. According to recent estimates (as on October 5, 2006), the current foreign exchange reserves are around $150 Billion and the current market value of the FII portfolio is roughly $130 Billion dollars. These astounding figures not only put a big question mark on the stability of the returns of the Indian Capital market, they also add on to the uncertainty about the sustainability of the Indian Growth Story.
Literatures on the empirical investigation about the impact of foreign interest rates on the
economy of emerging markets are now documented. It is thus possible to understand the episodes in the Indian context. On introducing a shock to the Federal Interest Rate an immediate response from the MSCI (Morgan Stanley Capital Index) Index is witnessed. The American Indices have a substantial percentage in the MSCI world index and hence, any shock in the federal rate would effect the domestic US indices and hence the MSCI World Index. The Indian government also reacts in coherence and hence, a significant effect in the MIBOR (Mumbai Interbank Offer rate) can be noticed with the effect staying up to 18-20 months. As interest rates and inflation go hand in hand, even WPI shows a significant reaction to the shock with effect tapering off only after 18 months. Exchange rate, being a managed float, does not show a very significant change but even for this variable, the effect tapers to zero only around the 16th month. Due to the effect on the domestic macro-economic variables, the Index of Industrial Production also shows a significant reaction but the effect on this variable is the shortest lived with the effect minimizing from the 8th month. Finally, it can be viewed that the Sensex also shows a significant response to the shock in US Federal Interest Rate and this can be attributed to the effect of the macro-economic variables on the Capital markets.
It is also possible to study the causes of variation (due the above mentioned variables) in the Sensex returns. The Impulse response functions showed that the shock in the US federal interest rate causes a change in Indian macro-economic variables such as MIBOR, WPI, Exchange Rate and the Index of Industrial Production. The shock introduced to the federal interest rate also produced a significant response from both the BSE Sensex as well as the MSCI World Index. T`he above shows that the MSCI Return followed by the WPI has the maximum effect on the variation of the BSE Sensex. Federal Interest Rate and MIBOR have a gradual and a similar effect on the variation of the BSE Sensex. The exchange rate also has significant effect. The Index of Industrial Production has the least effect on the variation in the BSE Sensex returns.
Hence, it appears that the variation in the Indian Capital markets and the various macro-economic components can be explained by the movements in the US Federal Interest Rate and the World Indices.
The above investigation, of the effect of U.S. economy and Globalization on the Indian economy, can have a plethora of policy implications for India. There can be two schools of thought on this issue as there have been in the past for the effect of globalization. US is the largest and most technologically powerful economy in the world, with a per capita GDP of $42,000. Its GDP in terms of PPP is the highest in the world at $12.36 trillion followed by European Union. India ranks at 6th on this list behind China and Japan. According to the BRIC report (Wilson et al, 2003), of the G6 only U.S. and Japan will be among the top 6 economies by 2050. Currently, India’s export to US has the maximum share of the total Indian exports. The current and the past governments have tried to maintain as well enhance the relationship with U.S. in order to maintain the export led growth and also since, the main growth in the world consumption is U.S. driven (currently, 40% of the total consumer spending in the world is by U.S.).
On the other hand, an overdependence on the U.S. market can have dire implications on India’s growth. The US Federal interest rate has been on the upswing since January 2004, where it was around 1%, to the present where it is around 5.25% (September , 2006). U.S. ranks second in terms of cumulative Foreign Direct Investment (around $5.3 Billion from August, 1991 to July, 2006) after Mauritius in India and also accounts for around 40.5% of the total $25.3 billion FII flow (as on June 30, 2004) into India. May 2006 saw the biggest plunge ever in the Indian Capital markets, which is said to be fuelled by FII outflow (Rs. 8.2 Billion net outflow for May, 2006) following an increase in the U.S. federal interest rate, where a lot of Indians lost their lifetime savings. Conversely, only around $2 billion (up to 2004-2005) direct investments from India are to U.S., which is the maximum outward Indian investments followed by Russia and Mauritius. This, hence, brings in the concept of Immiserizing growth that whether the current growth experienced by the Indian economy is working towards social welfare or not and also questions the sustainability and equitability of the growth experienced in the recent years.
The government needs to take quick as well as gradual policy decisions to make the Indian growth story more domestic sector (Infrastructure, industry etc.) driven than external sector (Trade flow, exchange rates, etc.) driven. The need of the hour is to make the Indian growth story more inclusive. The current Bull Run of the Sensex (post May 2006-November ,2006) has seen only three sectors in the positive zone – Telecom, Infrastructure and Banking. The government needs to formulate policies so as to increase the purchasing power of the Indian consumer. Increase in the domestic demand would help the existing companies to achieve the economies of scale and would also attract new businesses to mushroom. To increase the per-capita consumption expenditure the government can either work towards increasing employment or take some liberal steps for the financial services sector. If the financial services sector policies are made more liberal, new businesses would be encouraged and also consumer demand shall increase (owing to availability of credit at easier terms), thus allowing the existing industries to increase both their bottom line as well as the top line and hence, expand. The government also needs to increase the accessibility and coverage of credit and banking services to the bottom of the pyramid. Out of the total loans passed on by the Banks only 8% are consumer loans compared to 13% and 26% in other developing nations like Thailand and Malaysia. Emphasizing on growth in Domestic savings is also imperative for sustainable and inclusive growth. In 2005-2006, 46% of the household assets were in the form of Bank deposits while around 20% were in real estate and only 5% as shares and debentures. The government needs to take steps for increasing the domestic savings (In 2002-2003, Household savings were 22.65% of the Indian GDP)so that the funds generated can be channelised to the productive sectors to attain the desired growth objectives. This would also help the government achieve the objective of increasing the employment prospects and this further drives in the argument of increasing the financial service sector penetration to attain inclusive growth.
Every developed or developing nation directly or indirectly is dependent on the U.S. because of the consumer base it has. India, cannot escape the effect of globalization and neither can totally immunize itself from it. But, it can learn from the boom-bust stories of the other emerging countries and hence, develop policies and framework to ensure that the higher growth is more inclusive so as to make the growth story sustainable. But, the Indian investor as well as the government would need to brace itself for any harsh reaction following any of the policy decisions targeted towards increased inclusive growth and reduced participation from the foreign institutional investors (Recent Thailand case in context). But, till than one can only expect an appreciating rupee and a Sensex scaling newer heights and also, more volatility as the sensex moves with the mood swings of these Institutional investors.
Low Growth to Prosperity- Do We Have Any Human Resource Development Strategy?
The condition of endogenous growth may have a strong link with basic foundation of human capital. This human capital may be defined by different grades that enter the production function differently and affect, in turn, the rates of return to physical capital. Thus the development of human capital may be defined in two ways, one with basic education and the other with the knowledge, skills, competence and other attributes embodied in individuals that are complementary according to the structural condition of the country. Accordingly, human capital may also be viewed as a factor of production just like – but distinct from – physical capital and labor. The physical capital may provide a necessary, but not sufficient condition for the production of goods and services. Developing economies suffer not only from a shortage of physical capital but also from a severe shortage of human capital, although they might simultaneously have an abundance of labor with basic education. This is also borne out by studies reporting higher rates of return on investments in human capital in developing economies than in developed ones.
Development of human capital in the form of basic education may be considered as a primary requirement for achieving economic development. Economists’ stress the importance of human development for societies to prosper economically and also for sustainable development. It is often argued that human capital in the form of basic education can make economic transactions more efficient by providing economic participants with access to more information, thus enabling them to coordinate activities for mutual benefit.
Many experts point to a number of possible benefits of knowledge, human skill development for developing countries. It is often argued that incentives that are built into the institutional framework for skill development and accordingly play a decisive role in shaping the kinds of skills and knowledge are more effective. In the East Asian context, for example, it is the egalitarian education policies, which have played a pivotal role in their economic growth. It is further argued that the increased equality has led to enhanced political and social stability, thereby creating a better investment environment. The lack of complementary factors such as non-availability of skilled labor further added to the problem of capital flow to the capital-poor countries such as Caribbean economies with all features of successful intervention in the basic education.
There is a strong relationship between investments in human capital and economic growth. The need to improve the quality of human resources is particularly important for developing nations, given its importance in the attraction of foreign direct investment. Although the developing world accounts for a steadily increasing share of world manufacturing (partly driven by lower wages and costs in that world), competitive advantage based on low wages is inherently a transitory phenomenon: sooner or later, developing countries will face the need to improve their skill as other lower cost producers emerge. This has led to the researchers to understand the structure of human capital development of a country. This is particularly true in the Caribbean economies where secondary level of education is very high due to the governments’ successful intervention but education at tertiary level is equally poor. Primary education generates the highest rates of return; secondary level has lower returns while tertiary level has higher returns than the secondary level.
Many have argued that the level of education is below the performance required to integrate entrants to the labor force. They emphasized the need for a well-educated work force as the key determinant of development in the region. According to them part of the low productivity levels in the region are partly explained by ineffective education. A significant number of populations have been at the highest risk of low academic achievement. The boys generally perform below girls are part of the people under poverty level. They group in addition to rural children are vulnerable to the inequities in the structure of some education systems. The fact that the poor have low levels of education in all countries highlights the need to address educational issues.
It is useful to examine the rate of unemployment according to education level across Caribbean economies. Table reveals an interesting picture. The large number of unemployment is concentrated upto secondary education level in the region. Some of them may have been retrenched and are perhaps not capable of retrained may affect the figures.
It is true that there is a strong connection between the key achievements of human development in the form of basic education and the importance of the investments made in this respect in the Caribbean. Of late, the quality of service is declining. The studies (for example World Bank 1996) find that real expenditures on education and health have fallen in many island nations over the past decade. As a consequence, physical structures have deteriorated, equipment is lacking, and teaching aids are non-existent in most school.
The skill development program of Singapore may have accelerated growth for many developing economies. Key aspects of Singapore’s context (small size, export orientation, the need to attract foreign direct investment) are also exists in other developing economies including Caribbean economies. The countries may not however have all the institutional preconditions that prevailed in Singapore.
There are many different types of public and private training programs in the Region in order to address issues such as low skill levels and high rate of unemployment rates among youth. In some economies, ineffective training schemes impede an effective labor market for growth. This is due to limited labor market information systems and weak dialogue between public educational institutions and employers. Government programs in particular have found it difficult to respond to the changing needs of the labor market, and to provide up-to-date equipment because of bureaucratic and fiscal pressures (World Bank 1997). There may be few exceptions.
It is useful to cite the example of Singapore in this context due to the fact that Singapore’s growth has largely been driven by larger inputs of capital and labor rather than productivity growth. It is often argued that Singapore’s acclaimed skills development system may be considered as an example of a concerted national and integrated effort, given its multilevel focus and private sector collaboration. It is successful because it is linked to other national policies (e.g., economic development, technology transfer), and various institutions appear to work together. One can examine several key actors and institutions in this respect. The Ministry of Trade and Industry (MTI) played a key role for broad economic development policies. A range of semi-autonomous agencies played an active role. For example the Economic Development Board (EDB) has the primary function of attracting foreign direct investment and foreign investor’s demands for the required skill personnel. Likewise the Productivity and Standards Board (PSB), the Institute of Technical Education (ITE), and other industry-specific bodies such as the Precision Engineering Institute (PEI), to meet the skills demands of foreign investors. The National Manpower Council (NMC) of Singapore as a second key institution consults MTI and Ministry of Education( MoE), Polytechnics and Universities in order to prepare the intake and output targets of ITE. The council for Professional and Technical Education (CPTE) has over all responsibility for matching the demand and supply for skills in the economy. Based on existing levels and estimated future needs, this body works together with different parts of the education system (Universities, polytechnics and schools) and skills development institutions (ITE, and other industry specific training institutes) to ensure the supply of sufficient numbers of workers with the desired level of skills for industry requirements. A third key actor is the MoE, which has direct jurisdiction over schools, polytechnics, universities and the ITE.
The region is known for her efficient and effective public intervention in education; health and related services that has contributed immense benefit to the quality of life. This may be considered as powerful ingredient of development in the region. However, education and the skill development strategy of the region need to be reexamined. The institutional aspect of Singapore model may have strong relevance in this context. The system may play an important role in enhancing long- term growth. According to various statistics, about a million call -center jobs may be generated in USA and UK in the forthcoming year. The lion share of them may shift to India and China. A significant percentage should have been shifted to this English-speaking region. Unfortunately, our existing structure is too weak to transform. Such transformation should be the only way to move our economy from low growth to prosperity.
Development of human capital in the form of basic education may be considered as a primary requirement for achieving economic development. Economists’ stress the importance of human development for societies to prosper economically and also for sustainable development. It is often argued that human capital in the form of basic education can make economic transactions more efficient by providing economic participants with access to more information, thus enabling them to coordinate activities for mutual benefit.
Many experts point to a number of possible benefits of knowledge, human skill development for developing countries. It is often argued that incentives that are built into the institutional framework for skill development and accordingly play a decisive role in shaping the kinds of skills and knowledge are more effective. In the East Asian context, for example, it is the egalitarian education policies, which have played a pivotal role in their economic growth. It is further argued that the increased equality has led to enhanced political and social stability, thereby creating a better investment environment. The lack of complementary factors such as non-availability of skilled labor further added to the problem of capital flow to the capital-poor countries such as Caribbean economies with all features of successful intervention in the basic education.
There is a strong relationship between investments in human capital and economic growth. The need to improve the quality of human resources is particularly important for developing nations, given its importance in the attraction of foreign direct investment. Although the developing world accounts for a steadily increasing share of world manufacturing (partly driven by lower wages and costs in that world), competitive advantage based on low wages is inherently a transitory phenomenon: sooner or later, developing countries will face the need to improve their skill as other lower cost producers emerge. This has led to the researchers to understand the structure of human capital development of a country. This is particularly true in the Caribbean economies where secondary level of education is very high due to the governments’ successful intervention but education at tertiary level is equally poor. Primary education generates the highest rates of return; secondary level has lower returns while tertiary level has higher returns than the secondary level.
Many have argued that the level of education is below the performance required to integrate entrants to the labor force. They emphasized the need for a well-educated work force as the key determinant of development in the region. According to them part of the low productivity levels in the region are partly explained by ineffective education. A significant number of populations have been at the highest risk of low academic achievement. The boys generally perform below girls are part of the people under poverty level. They group in addition to rural children are vulnerable to the inequities in the structure of some education systems. The fact that the poor have low levels of education in all countries highlights the need to address educational issues.
It is useful to examine the rate of unemployment according to education level across Caribbean economies. Table reveals an interesting picture. The large number of unemployment is concentrated upto secondary education level in the region. Some of them may have been retrenched and are perhaps not capable of retrained may affect the figures.
It is true that there is a strong connection between the key achievements of human development in the form of basic education and the importance of the investments made in this respect in the Caribbean. Of late, the quality of service is declining. The studies (for example World Bank 1996) find that real expenditures on education and health have fallen in many island nations over the past decade. As a consequence, physical structures have deteriorated, equipment is lacking, and teaching aids are non-existent in most school.
The skill development program of Singapore may have accelerated growth for many developing economies. Key aspects of Singapore’s context (small size, export orientation, the need to attract foreign direct investment) are also exists in other developing economies including Caribbean economies. The countries may not however have all the institutional preconditions that prevailed in Singapore.
There are many different types of public and private training programs in the Region in order to address issues such as low skill levels and high rate of unemployment rates among youth. In some economies, ineffective training schemes impede an effective labor market for growth. This is due to limited labor market information systems and weak dialogue between public educational institutions and employers. Government programs in particular have found it difficult to respond to the changing needs of the labor market, and to provide up-to-date equipment because of bureaucratic and fiscal pressures (World Bank 1997). There may be few exceptions.
It is useful to cite the example of Singapore in this context due to the fact that Singapore’s growth has largely been driven by larger inputs of capital and labor rather than productivity growth. It is often argued that Singapore’s acclaimed skills development system may be considered as an example of a concerted national and integrated effort, given its multilevel focus and private sector collaboration. It is successful because it is linked to other national policies (e.g., economic development, technology transfer), and various institutions appear to work together. One can examine several key actors and institutions in this respect. The Ministry of Trade and Industry (MTI) played a key role for broad economic development policies. A range of semi-autonomous agencies played an active role. For example the Economic Development Board (EDB) has the primary function of attracting foreign direct investment and foreign investor’s demands for the required skill personnel. Likewise the Productivity and Standards Board (PSB), the Institute of Technical Education (ITE), and other industry-specific bodies such as the Precision Engineering Institute (PEI), to meet the skills demands of foreign investors. The National Manpower Council (NMC) of Singapore as a second key institution consults MTI and Ministry of Education( MoE), Polytechnics and Universities in order to prepare the intake and output targets of ITE. The council for Professional and Technical Education (CPTE) has over all responsibility for matching the demand and supply for skills in the economy. Based on existing levels and estimated future needs, this body works together with different parts of the education system (Universities, polytechnics and schools) and skills development institutions (ITE, and other industry specific training institutes) to ensure the supply of sufficient numbers of workers with the desired level of skills for industry requirements. A third key actor is the MoE, which has direct jurisdiction over schools, polytechnics, universities and the ITE.
The region is known for her efficient and effective public intervention in education; health and related services that has contributed immense benefit to the quality of life. This may be considered as powerful ingredient of development in the region. However, education and the skill development strategy of the region need to be reexamined. The institutional aspect of Singapore model may have strong relevance in this context. The system may play an important role in enhancing long- term growth. According to various statistics, about a million call -center jobs may be generated in USA and UK in the forthcoming year. The lion share of them may shift to India and China. A significant percentage should have been shifted to this English-speaking region. Unfortunately, our existing structure is too weak to transform. Such transformation should be the only way to move our economy from low growth to prosperity.
India’s Business Interest in the Caribbean: Do We Need Certain Policy Interventions?
Gravity model is popular to predict movement of people, information, and commodities between cities and even continents. This takes into account the population size of two places and the distance between them. Since larger places attract people, ideas, and commodities more than smaller and places closer together have a greater attraction, the gravity model incorporates these two features. Such attraction, in turn, can explain certain economic flows such as investment, market access and trade.
The Caribbean economies may be considered as an attraction for the Indians. The economies may not have locational advantages such as large markets, lower costs of resource or superior infrastructure. Investment decisions in the Caribbean have been strongly influenced by historical ties with member states’ colonial past. In the Bahamas for example, the main sectoral and industrial recipients of FDI are tourism, financial services and infrastructure. The key players are Belgium, France, Germany, Hong Kong, UK, USA and the Netherlands. Canada, UK and the USA are the major players in Barbados’ tourism, agriculture, manufacturing, financial services and informatics sectors The major players in Belize’s agriculture/mariculture (shrimp farming), manufacturing (agro-processing), tourism and infrastructure (telecommunications) sectors are China, Taiwan, UK and USA. In Guyana, Canada, South Korea/Malaysia, UK, and US Virgin Islands dominate the sectors of mining (gold), forestry, Infrastructure (power and telecommunications), and trade. Tourism, mining and manufacturing in Jamaica are dominated by Canada, UK and USA respectively. In the other Eastern Caribbean economies, Caribbean, USA, UK, and other European countries – particularly Italy – are the main sources of FDI in agriculture, tourism and manufacturing. The Netherlands and USA are the major players in Suriname’s mining and manufacturing. In Trinidad and Tobago, energy (petroleum and petrochemicals, natural gas), electricity, transportation and communications and manufacturing are dominated by select Asian countries, Spain, UK and the USA.
To a large extent, CARICOM (Caribbean community) economies have pursued liberal foreign investment policies with limited restrictions on FDI. Some of these restrictions include: administrative foreign exchange control; land acquisition and reservation of certain sectors for local operations. The legal and institutional framework for investment promotion in the Caribbean has been well established. While the legal framework addresses the needs of investors – particularly the offshore sectors – in the form of international business legislation, the policy statements by the government translate the framework into the administrative arrangements and procedures for the approval of investments. Emphasis has been on all types of investment. The Caribbean has a very weak capital goods sector due to non-availability of high-tech and high value-added activities. In general, the Caribbean economies are classified as natural resource based or service oriented or a combination of both.
The Caribbean region has potential for high-tech industries. The Free Trade Area of the Americas (FTAA) – tentatively scheduled for completion in 2007 will encompass some 34 countries in the Americas, including the United States, creating a market with a population of approximately 800 million and a GDP of some $8.5 trillion English speaking Caribbean economies, despite their small sizes may play an important role by providing fiscal incentives to foreign investors (with particular reference to Indian IT investors) in the areas of services and manufacturing. The decision is strategic since it will help the foreign investors to explore markets in developed economies like USA and Canada. In recent times Mexico is taking full advantage in the NAFTA region. Private investors are more interested in financing projects in the Caribbean due to little risk involved. Given the inter-island synergies between the British West Indies, economies of scale are sometimes difficult to attain. However, the region follows the models laid down by countries such as Canada or Ireland that have built their industries on accommodation to the United States. In this context there are immense prospects of establishing strong India-CARICOM trade and investment relationships under the changing scenario.
Unfortunately, India’s share, as a source of imports and destination of Caribbean exports has been marginal. For example, exports to India from Barbados in 2001 was US$37,000 of the total exports of US$272.8 million, Imports from India was US$1.6 million of the total imports of US$1156 million,
India enjoys a special position in the context of the Caribbean economies due to its historical, ethnic and emotional relationships. It may be possible to develop strong economic linkages leveraging on these old relationships. The Caribbean countries need to reduce their dependence on the US (and to some extent the EU) markets for their imports and exports so as to dampen the wide fluctuations in their economic activity from year to year. The Indian economy has many complementarities vis-à-vis the Caribbean and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors of the economy where India has done exceedingly well and there is scope for developing economic linkages based on the same.
Investment from South, East and South-East Asia to the Caribbean is on the rise. Incentives to export-oriented investment as well as privileged access to the United States market have played a role in attracting, for instance, garments and other labour intensive industries form Asian to Caribbean countries. Interestingly, China is one of the largest investors in the Caribbean in recent times
Indian diaspora are not only strong in the USA and Europe, they form an equally strong business community in both Africa and the Caribbean. These roots may help the Indian business community to export capital in the form of foreign direct investment of its own to the region. Under the FTAA regime more and more multinationals may shift the operation and control of key business functions away from their head office to the English speaking Caribbean. This may happen at a rapid rate as IT skills and networks make the spread of digital information increasingly easy. Indian companies can take full advantage of the changing scenario by establishing their businesses and then explore their potential in the integrated region. This may be possible in the areas of IT and other financial services. Other possible areas of cooperation in order to create a win-win situation are, service sector development, manpower and training, Indian high technology applications – satellite remote sensing, oceanography, IT, biotechnology, Indian industrial joint ventures, offshore financial operations, oil and gas-production, refining and transportation, Indian entertainment industry (Indian Hindi films), exchange of academics, technical cooperation in economy, finance, science & technology, pharmaceutical industry. The Caribbean is the region hardest hit by HIV/AIDS in the world outside sub-Saharan Africa. India can take advantage of its cheap anti-AIDS drugs in this region. Likewise, the region may be treated as an entry point for Indian goods & services to the Latin American and North American markets.
It is now open to question why China is active and then grown fast. The Caribbean economies are culturally and socially closer to India. Yet, the India could not take advantage of this proximity. Still there is opportunities .But it requires well-thought policy interventions. Are the Ministry of External affairs listening?
The Caribbean economies may be considered as an attraction for the Indians. The economies may not have locational advantages such as large markets, lower costs of resource or superior infrastructure. Investment decisions in the Caribbean have been strongly influenced by historical ties with member states’ colonial past. In the Bahamas for example, the main sectoral and industrial recipients of FDI are tourism, financial services and infrastructure. The key players are Belgium, France, Germany, Hong Kong, UK, USA and the Netherlands. Canada, UK and the USA are the major players in Barbados’ tourism, agriculture, manufacturing, financial services and informatics sectors The major players in Belize’s agriculture/mariculture (shrimp farming), manufacturing (agro-processing), tourism and infrastructure (telecommunications) sectors are China, Taiwan, UK and USA. In Guyana, Canada, South Korea/Malaysia, UK, and US Virgin Islands dominate the sectors of mining (gold), forestry, Infrastructure (power and telecommunications), and trade. Tourism, mining and manufacturing in Jamaica are dominated by Canada, UK and USA respectively. In the other Eastern Caribbean economies, Caribbean, USA, UK, and other European countries – particularly Italy – are the main sources of FDI in agriculture, tourism and manufacturing. The Netherlands and USA are the major players in Suriname’s mining and manufacturing. In Trinidad and Tobago, energy (petroleum and petrochemicals, natural gas), electricity, transportation and communications and manufacturing are dominated by select Asian countries, Spain, UK and the USA.
To a large extent, CARICOM (Caribbean community) economies have pursued liberal foreign investment policies with limited restrictions on FDI. Some of these restrictions include: administrative foreign exchange control; land acquisition and reservation of certain sectors for local operations. The legal and institutional framework for investment promotion in the Caribbean has been well established. While the legal framework addresses the needs of investors – particularly the offshore sectors – in the form of international business legislation, the policy statements by the government translate the framework into the administrative arrangements and procedures for the approval of investments. Emphasis has been on all types of investment. The Caribbean has a very weak capital goods sector due to non-availability of high-tech and high value-added activities. In general, the Caribbean economies are classified as natural resource based or service oriented or a combination of both.
The Caribbean region has potential for high-tech industries. The Free Trade Area of the Americas (FTAA) – tentatively scheduled for completion in 2007 will encompass some 34 countries in the Americas, including the United States, creating a market with a population of approximately 800 million and a GDP of some $8.5 trillion English speaking Caribbean economies, despite their small sizes may play an important role by providing fiscal incentives to foreign investors (with particular reference to Indian IT investors) in the areas of services and manufacturing. The decision is strategic since it will help the foreign investors to explore markets in developed economies like USA and Canada. In recent times Mexico is taking full advantage in the NAFTA region. Private investors are more interested in financing projects in the Caribbean due to little risk involved. Given the inter-island synergies between the British West Indies, economies of scale are sometimes difficult to attain. However, the region follows the models laid down by countries such as Canada or Ireland that have built their industries on accommodation to the United States. In this context there are immense prospects of establishing strong India-CARICOM trade and investment relationships under the changing scenario.
Unfortunately, India’s share, as a source of imports and destination of Caribbean exports has been marginal. For example, exports to India from Barbados in 2001 was US$37,000 of the total exports of US$272.8 million, Imports from India was US$1.6 million of the total imports of US$1156 million,
India enjoys a special position in the context of the Caribbean economies due to its historical, ethnic and emotional relationships. It may be possible to develop strong economic linkages leveraging on these old relationships. The Caribbean countries need to reduce their dependence on the US (and to some extent the EU) markets for their imports and exports so as to dampen the wide fluctuations in their economic activity from year to year. The Indian economy has many complementarities vis-à-vis the Caribbean and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors of the economy where India has done exceedingly well and there is scope for developing economic linkages based on the same.
Investment from South, East and South-East Asia to the Caribbean is on the rise. Incentives to export-oriented investment as well as privileged access to the United States market have played a role in attracting, for instance, garments and other labour intensive industries form Asian to Caribbean countries. Interestingly, China is one of the largest investors in the Caribbean in recent times
Indian diaspora are not only strong in the USA and Europe, they form an equally strong business community in both Africa and the Caribbean. These roots may help the Indian business community to export capital in the form of foreign direct investment of its own to the region. Under the FTAA regime more and more multinationals may shift the operation and control of key business functions away from their head office to the English speaking Caribbean. This may happen at a rapid rate as IT skills and networks make the spread of digital information increasingly easy. Indian companies can take full advantage of the changing scenario by establishing their businesses and then explore their potential in the integrated region. This may be possible in the areas of IT and other financial services. Other possible areas of cooperation in order to create a win-win situation are, service sector development, manpower and training, Indian high technology applications – satellite remote sensing, oceanography, IT, biotechnology, Indian industrial joint ventures, offshore financial operations, oil and gas-production, refining and transportation, Indian entertainment industry (Indian Hindi films), exchange of academics, technical cooperation in economy, finance, science & technology, pharmaceutical industry. The Caribbean is the region hardest hit by HIV/AIDS in the world outside sub-Saharan Africa. India can take advantage of its cheap anti-AIDS drugs in this region. Likewise, the region may be treated as an entry point for Indian goods & services to the Latin American and North American markets.
It is now open to question why China is active and then grown fast. The Caribbean economies are culturally and socially closer to India. Yet, the India could not take advantage of this proximity. Still there is opportunities .But it requires well-thought policy interventions. Are the Ministry of External affairs listening?
My roots
I have been awarded a Ph.D. at the Delhi School of Economics, University of Delhi, India on “H Y V technology and Relative Productivity of Small Farms: Case Study Bangladesh” in May 1993. It seems useful to mention a few highlights of my Ph. D. thesis in the light of both academic and policy perspectives.
It used to be claimed, notably in developing countries, that imperfection of factor markets is the determinant factor in explaining unemployment and poverty. Solutions such as supply of inputs and land reforms etc were suggested. Yet in poorer countries the odds are, that even within a village and during a peak farm operation, the question of disguised unemployment is liable to be troublesome as these are time specific and water management specific. What is thus interesting and seems to have been missed out by the existing literature is that several of the factors can be exacerbated or minimized depending on the management of water in question. Likewise, there was a time when researchers argued against adoption of the new technology in agriculture, as it may compound the misery of the poor. This is perhaps not the case in Bangladesh. In fact,
adoption of new technology averted widespread starvation and helped millions of people to escape hunger once and for all. I have re-explored the problem and have addressed various policy implications with economic incentives.
The above facets are exclusively explained my rural roots with immense curiosity of village, people and institutions. I worked for World Bank (Delhi Office), International Development Research Center (Delhi Office) and International Labour Organisation (Delhi Office) as a Development Economist immediately submission of my Ph.D. dissertation. My experiences were diverse. In fact, I found an opportunity to develop myself in various aspects of development and policy there of.
In 1994, I decided to join as associate professor at International Management Institute ((IMI), New Delhi. Since then, I have been teaching Microeconomics, Macroeconomics, International economics, Statistics and International finance. In addition, I designed and coordinated 10 -short term programmes on “ Farm Management” for the participants of Nigeria. The programmes were sponsored by the World Bank. I am quite satisfied with my teaching performance. I was one of the most highly rated teachers among both local and foreign participants (mostly from South Asia, Africa, Central Asian Republics and Russia).
At IMI, I exposed to diverse research areas. For example, we conducted a survey in 199-2000 to investigate the factors explaining beneficiary artisans’ increase in income across 129 districts in India. In addition, the study aims at examining the impact of beneficiary households’ assets, education, social group and extent of experience on the income effect of The Supply of Tool Kits to Rural artisans (SITRA).
The Supply of Improved Toolkits to Rural Artisans (SITRA) was launched as a sub-scheme of the Integrated Rural Development Programme (IRDP) of the Government of India in July 1992 with the objective of enabling rural artisans below the poverty line
(BPL) to enhance the quality of their products, increase their production and income and ensure a better quality of life for themselves. This was also expected to help reduce their migration to urban areas.
The study was based on information gathered from three main sources, namely, the implementing agency which was the District Rural development Agency (DRDA), the Gram Panchayat and the individual beneficiary artisans from the target group. The number of districts for the study was fixed at 20 per cent of the total number of districts subject to a minimum of two districts in each state. The districts were selected through purposive sampling to ensure that these districts were adequately representative of the state with respect to geographical distribution and special conditions of the state, if any. A total of 6788 beneficiary artisan households were chosen. These households were under the BPL households enumerated by the Government of India in 1992/1997.
The estimate of the logit regression reveals that the backward classes as a broad social group were more likely to have benefited from the programme. The importance of ‘using kits’ appears to be the second-most significant factor in enhancing the income of artisans’ households. Interestingly, the number of years of education at the artisan household level is reflected in the negative coefficients. This may be due to the non-availability of skill-specific education at the beneficiary artisan level. The small, though significant, negative estimated coefficient of the ‘number of assets’ variable shows that the artisan will have to contribute from other sources of household income to create the assets.
I was also involved in other research areas such as technology transfer, comparative analysis of foreign investment in India and China, trade pattern in the south Asian region and so on.
I took leave from IMI, New Delhi to join the Department of Economics, University of the West Indies, Cave Hill Campus, Barbados (West Indies) in January 2001. I taught Elements of Macro economics, Intermediate macroeconomics, Economic planning and project appraisal, International Finance and development economics. There, too I showed my potentiality in teaching. In addition, I published several research papers on “foreign Capital transfers in the Caribbean region” and “new growth theories “.
My book entitled “Foreign Capital Inflows to the China, India and the Caribbean: Trends, Assessments and Determinants” was published by Palgrave-Macmillan’s Global Academic Publishing, Macmillan Publishing Limited, London in July 2006. It is in this context to be mentioned here that foreign capital inflows are large and diverse in the context of both developing and developed countries. Generally, foreign capital flows are believed to be influenced by economic indicators like market size and export intensity, institutions etc., irrespective of the source and the destination countries. My book looks at the foreign capital inflows in an alternate approach based on the concepts of neighbourhood and extended neighbourhood. While a substantial fraction of foreign inflows may be explained by select economic variables, the country-specific factors and the idiosyncratic component account for more of investment inflows in China, India and the Caribbean. My book also investigates the spillovers of foreign capital-particularly technology transfer in the vibrant economies of China, India and the Caribbean. It hosts a number of research issues and brilliantly captures the background of why India and China are likely to dominate the world in future.
It used to be claimed, notably in developing countries, that imperfection of factor markets is the determinant factor in explaining unemployment and poverty. Solutions such as supply of inputs and land reforms etc were suggested. Yet in poorer countries the odds are, that even within a village and during a peak farm operation, the question of disguised unemployment is liable to be troublesome as these are time specific and water management specific. What is thus interesting and seems to have been missed out by the existing literature is that several of the factors can be exacerbated or minimized depending on the management of water in question. Likewise, there was a time when researchers argued against adoption of the new technology in agriculture, as it may compound the misery of the poor. This is perhaps not the case in Bangladesh. In fact,
adoption of new technology averted widespread starvation and helped millions of people to escape hunger once and for all. I have re-explored the problem and have addressed various policy implications with economic incentives.
The above facets are exclusively explained my rural roots with immense curiosity of village, people and institutions. I worked for World Bank (Delhi Office), International Development Research Center (Delhi Office) and International Labour Organisation (Delhi Office) as a Development Economist immediately submission of my Ph.D. dissertation. My experiences were diverse. In fact, I found an opportunity to develop myself in various aspects of development and policy there of.
In 1994, I decided to join as associate professor at International Management Institute ((IMI), New Delhi. Since then, I have been teaching Microeconomics, Macroeconomics, International economics, Statistics and International finance. In addition, I designed and coordinated 10 -short term programmes on “ Farm Management” for the participants of Nigeria. The programmes were sponsored by the World Bank. I am quite satisfied with my teaching performance. I was one of the most highly rated teachers among both local and foreign participants (mostly from South Asia, Africa, Central Asian Republics and Russia).
At IMI, I exposed to diverse research areas. For example, we conducted a survey in 199-2000 to investigate the factors explaining beneficiary artisans’ increase in income across 129 districts in India. In addition, the study aims at examining the impact of beneficiary households’ assets, education, social group and extent of experience on the income effect of The Supply of Tool Kits to Rural artisans (SITRA).
The Supply of Improved Toolkits to Rural Artisans (SITRA) was launched as a sub-scheme of the Integrated Rural Development Programme (IRDP) of the Government of India in July 1992 with the objective of enabling rural artisans below the poverty line
(BPL) to enhance the quality of their products, increase their production and income and ensure a better quality of life for themselves. This was also expected to help reduce their migration to urban areas.
The study was based on information gathered from three main sources, namely, the implementing agency which was the District Rural development Agency (DRDA), the Gram Panchayat and the individual beneficiary artisans from the target group. The number of districts for the study was fixed at 20 per cent of the total number of districts subject to a minimum of two districts in each state. The districts were selected through purposive sampling to ensure that these districts were adequately representative of the state with respect to geographical distribution and special conditions of the state, if any. A total of 6788 beneficiary artisan households were chosen. These households were under the BPL households enumerated by the Government of India in 1992/1997.
The estimate of the logit regression reveals that the backward classes as a broad social group were more likely to have benefited from the programme. The importance of ‘using kits’ appears to be the second-most significant factor in enhancing the income of artisans’ households. Interestingly, the number of years of education at the artisan household level is reflected in the negative coefficients. This may be due to the non-availability of skill-specific education at the beneficiary artisan level. The small, though significant, negative estimated coefficient of the ‘number of assets’ variable shows that the artisan will have to contribute from other sources of household income to create the assets.
I was also involved in other research areas such as technology transfer, comparative analysis of foreign investment in India and China, trade pattern in the south Asian region and so on.
I took leave from IMI, New Delhi to join the Department of Economics, University of the West Indies, Cave Hill Campus, Barbados (West Indies) in January 2001. I taught Elements of Macro economics, Intermediate macroeconomics, Economic planning and project appraisal, International Finance and development economics. There, too I showed my potentiality in teaching. In addition, I published several research papers on “foreign Capital transfers in the Caribbean region” and “new growth theories “.
My book entitled “Foreign Capital Inflows to the China, India and the Caribbean: Trends, Assessments and Determinants” was published by Palgrave-Macmillan’s Global Academic Publishing, Macmillan Publishing Limited, London in July 2006. It is in this context to be mentioned here that foreign capital inflows are large and diverse in the context of both developing and developed countries. Generally, foreign capital flows are believed to be influenced by economic indicators like market size and export intensity, institutions etc., irrespective of the source and the destination countries. My book looks at the foreign capital inflows in an alternate approach based on the concepts of neighbourhood and extended neighbourhood. While a substantial fraction of foreign inflows may be explained by select economic variables, the country-specific factors and the idiosyncratic component account for more of investment inflows in China, India and the Caribbean. My book also investigates the spillovers of foreign capital-particularly technology transfer in the vibrant economies of China, India and the Caribbean. It hosts a number of research issues and brilliantly captures the background of why India and China are likely to dominate the world in future.
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