What Explains Indias Real Appreciation? Renu Kohli

ISBN: 9781282558229

Published: November 1st 2007


52 pages


What Explains Indias Real Appreciation?  by  Renu Kohli

What Explains Indias Real Appreciation? by Renu Kohli
November 1st 2007 | ebook | PDF, EPUB, FB2, DjVu, audiobook, mp3, RTF | 52 pages | ISBN: 9781282558229 | 4.54 Mb

We examine the evolution of nontradable and tradable prices in the Indian economy over 1980-2002 and find widening differentials: the real exchange rate has been appreciating. This might seem unsurprising, since Indias rapid per capita income growth suggests Balassa-Samuelson factors at play.

However, after 1990, the tradable-nontradable labor productivity gap, the driver of real appreciation according to Balassa-Samuelson, virtually disappeared. So what explains the real appreciation? Assessing the role of both demand and supply factors, we find that demand pressures arising from higher income growth accounted for much of the relative price increase during the post-reform period. Falling import prices also contributed significantly, along with an increase in government spending.

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