Transcript (Presentation)

Relationship between Openness and Growth:
- Research Questions and Methodology
Sugata Marjit
And
Saibal Kar
Centre for Studies in Social Sciences, Calcutta
Introduction
• Trade affects regional income of a geographically
large developing country
• Egger, Huber and Pfaffermayr (2005) deals with
trade openness of EUs and regional disparity (based
on available regional trade data)
• Absence of regional trade data
• Lack of proper indicator of regional trade openness,
and relation between openness and poverty, regional
income differences, etc.
Methodological Questions
• How could one deal with the issue of trade openness
and poverty?
• Two ways to approach the issue: Macro and Micro
• What we have done in this paper is a Macro exercise
to devise a holistic measure of openness across regions
- although same method might be applied to more
disaggregated framework . One may make a journey
from Macro to Micro.
Previous Studies
• Maiti (2004) and Marjit and Maiti (2006) observe trade exposure,
specialisation and fragmentation in the labour market - expansion of
informal sector through tying up with formal sector
•Purfield (2006) – NSS data on 15 largest states between
1973/74–2002/03 suggests - differences in policies adopted by
states affect their individual patterns of growth.
• Topalova (2005)- using NSS data - trade liberalization had
different impacts on poverty and inequality across states.
•In rural districts where industries were more exposed to
liberalization, trade liberalization has had a negative effect on
poverty reduction.
•Trade liberalization led to an increase in poverty and poverty gap
in these rural districts, mainly owing to limited factor mobility
across regions and sectors.
Openness Index - Methodology
• Unavailability of trade data by regions
• We try to devise a proxy for ‘trade’ by using production data at the state
level.
•DGCIS is the source of trade data according to HS classification
• ASI is the source of State industrial data according to NIC
classification
•Since ASI and DGCIS use different definitions, we reclassify and merge
comparable data at the 2-digit level
• For a specific state, the level of output (i.e. sum of industrial and
agricultural output) has been linked to all-India trade figures to get an
approximate indicator of how much ‘open’ a particular state is.
• We exclude service sector due to lack of production or trade data
Openness Index : Methodology (Contd.)
Firstly, State industrial data is reclassified as follows:
Openness Index : Methodology (Contd.)
Second, trade is reclassified as follows:
Table : DGCI&S trade
classifications tallied with ASI data
NIC
ASI
code
DGCI&S (1980-81 to 1987-88)
DGCI&S (1987-88 to 2002-03)
RS THOUSAND
RS LAKH
RS LAKHS
FOOD, BEVERAGES & TOBACCO
Section (0+1+4)
Chapter 1-24
Division (26+65+84)
Chapter 50-63
Division (24+63)
Chapter 44-46
Division (25+64+892)
Chapter 47-49
Division 61
Chapter 41-43
Section 5-Division 58
Chapter 28-38
Section 3+ Division (23+58+62)
Chapter 27+ Chapter 39-40
Division 66
Chapter 68-70
Division (67+68)
Chapter 72-81
Division 69
Chapter 82-83
Section7+ Division (87+88)- Division 78
Chapter 84-85 + Chapter 90-92
Division 78
Chapter 86-89
15-16
TEXTILES
17-18
WOOD
20
PAPER
21-22
LEATHER
19
CHEMICAL
24
RUBBER, PLASTICS &PETROLEUM
23,25
NONMETAL
26
BASE-METALS
27
METAL- PRODUCTS
28
29-33,36
MACHINERY &EQUIPMENTS
TRANSPORT
34-35
Opennes Index: Methodology (contd.)
Third, for a particular state the share of value added by an
industrial group is:
where, = production share of ith industry in kth state at time period t;
GVAkit = Gross Value Added of ith industry in kth state at time period t;
NVAkit = Net Value Added of industry producing in kth state at time
period t;
DPkit = Depreciation of industry producing in kth state at time period t;
= Total of all gross value added of industries 15-16 to 34-35
Openness Index : Methodology (Contd.)
Fourth, export and import shares are respectively
the export and import of particular industry to
respective total
x it
mit
X it

Xt
M it

Mt
Openness Index : Methodology (Contd.)
Fifth, we derive the correlation between ‘share of
industrial production of a state’ and the ‘share of industrial
export for each state’ separately for each year and then
rank the correlation coefficient. We assign the rank of 1 to
the state with highest correlation and the rank of 15 to the
state with lowest correlation.
Sixth, similar to export performance rank we derive
correlation between ‘share of industrial production of a
state’ and the ‘share of industrial import for each state’
separately for each year and then rank the correlation
coefficient. We assign the rank of 1 to the state with
highest correlation and the rank of 15 to the state with
lowest correlation.
Openness Index: Methodology (contd.)
•Lastly, equal weights are assigned to the average of
export ranks and inverse of import ranks – which gives
the ‘openness index of a state’
k
t
O
 1
2
(R
k
xt
~k
 Rmt )
Relationship Between Openness and Interregional
Income Disparity
Table 1: Correlation of openness of states with HDI ranks
1981
1991
2000
2001
HDI
-0.27
ranks
Rural
-0.35
HDI
ranks
Urban
-0.36
HDI rank
0.17
0.22
0.33
0.01
NA
NA
0.08
NA
NA
Table2 : Correlation of openness of states with unemployment
rate and poverty ration
Year
1983-84
Unemploym Poverty ratio
ent rate
NA
0.18
1987
-0.04
0.13
1993-94
0.53
0.28
1999-200
0.39
0.21
Source: NSS report