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Structural Change and Growth in India



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Structural Change and Growth in India Orcan Cortuk Nirvikar Singh February 10 2010 Abstract This paper examines the link between structural change and growth in India It constructs indices of structural change and performs a time series analysis of the data It finds that 1988 marks a break in the time series of growth and structural change There is one way causality from structural change to growth in the period 1988 2007 whereas there is no evidence for this linkage before 1988 JEL classification O1 O5 Keywords Indian economy structural change growth causality Department of Economics University of California Santa Cruz ocortuk ucsc edu Professor of Economics University of California Santa Cruz Santa Cruz CA 95064 boxjenk ucsc edu INTRODUCTION The Indian economy has been one of the world s star growth performers in recent decades Debates about its growth process have focused on the timing of changes in the trend rate of growth with implications for judgments on the efficacy of market oriented reforms e g Panagariya 2008 and on the nature of that growth in terms of skillintensity e g Kochhar et al 2006 and services intensity e g Singh 2006 with implications for it future pattern and sustainability This paper examines the link between structural change and growth in India It constructs indices of structural change and performs a time series analysis of the data It finds that 1988 marks a break in the time series of growth and structural change There is one way causality from structural change to growth in the period 1988 2007 whereas there is no evidence for this linkage before 1988 By establishing the nature of the link between structural change and growth this analysis provides new insight into the growth process in India at the aggregate level DATA AND METHODOLOGY We start by describing the two variables we use in the analysis namely growth rates and structural change indices Growth rates are calculated from National Accounts gross domestic product GDP data 1 The



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