Faculty Publications

Economic Liberalization And Price Response Of Aggregate Private Investment: Time Series Evidence From India

Document Type

Article

Journal/Book/Conference Title

Canadian Journal of Economics

Volume

40

Issue

3

First Page

914

Last Page

934

Abstract

This paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India. The wide ranging reforms are expected to increase the price response of private investment due to (i) the Le Chatelier effect, (ii) a higher price elasticity of demand for final goods, and (iii) possible relaxation of the credit constraint. The empirical results, based on alternative specifications, estimation methods, and sample periods, show a dramatic increase in the price response; the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the 'License Raj.' © 2007 The Canadian Economics Association.

Department

Department of Economics

Original Publication Date

8-1-2007

DOI of published version

10.1111/j.1365-2966.2007.00436.x

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