1. Indian Economy Three structural features
Rise in the Growth rate of GDP
Structural change towards services
Rapid growth of trade as a share of GDP

2. GDP GROWTH Year Real GDP growth rate GDP at Current Prices 1975-85
5.04
11.99
4.84
8.26
6.22
7.75
8.51
12.15
Source: PENN WORLD TABLES

3. Evolution of Sectoral Shares in the Indian Economy
( prices since 1970)
Years
Agriculture
Industry
(Mgf)
Services 46
22 (13) 32 40
24 (14) 37
27 (17) 41 24 49 21 52
Source: National Accounts.

4. Source: Panagariya 2008

5. Source: Panagariya 2008

6. General Purpose Technologies and Growth
IT as a GPT
Jorgenson (2000,01,03,04...)
Jovanovic (2005)
Ruttan (2007)
Ashish Arora (2005)

7. Jorgenson(2001) Production Possibility Frontier
Y(In,Ic,Is,It,Cn,Cc)=A.X(Kn,Kc,Ks,Kt,L)
ΔlnA= (α1 ΔlnIn + α2 ΔlnIc +α3 ΔlnIs + α4 ΔlnIt + α5 ΔlnCn+ α6ΔlnCc)-
(β1 ΔlnKn + β2 ΔlnKc +β3 ΔlnKs + β4 Δln Kt +β5 ΔlnL)
where Σαi=1, Σβi=1

8. IT and the G7: Percentage Contribution to Output Growth
IT and the G7: Percentage Contribution to Output Growth (Jorgenson (2003))
Year US
Canada UK
France
Germany
Italy
Japan
Total K
1.4
1.62
1.34
2.93
1.39
2.52
1.85
1.15
0.81
1.29
1.36
1.33
1.10
1.47
2.08
1.51
0.83
1.21
1.41
1.63
1.18
IT Capital
0.46
0.31
0.22
0.23
0.17
0.43
0.47
0.35
0.97
0.54
0.42
0.41
0.78
Non IT Capital
1.00
1.31
1.12
2.76
1.22
2.29
1.42
0.68
1.06
1.20
0.88
1.16
1.11
0.14
0.40

9. Percentage Contribution to Productivity from IT and Non IT production Source: Jorgenson (2003)
Year US
Canada UK
France
Germany
Italy
Japan
TFP
0.53
-0.24
1.42
-0.06
0.69
-0.71
1.35
0.23
-0.32
-0.37
-0.67
0.15
0.89
0.64
0.66
0.49
0.06
0.29
-0.40
1.08 IT
0.22
0.14
0.20
0.28
0.25
0.31
0.44
0.21
0.62
0.43
0.57
0.61
NON IT
-0.38
1.22
-0.29
0.46
-0.99
1.12
-0.02
-0.46
0.01
-0.59
-0.96
-0.16
0.60
0.45
-0.13
-0.28
-1.02
0.47

10. Emerging Markets Brazil China India Ireland Israel Countries
Avg. sales of software sales in the 1990’s
Avg. GDP growth in the 1990’s
Software Exports as a % of sales
(2002)
Brazil 20
2.5
1-2
China
>35
9.8 11
India 40
3.4 80
Ireland
7.0 85
Israel
7.4 70
Source: Arora and Gamberdella: “From Underdogs to Tigers”

12. Indian Information Technology Industry

13. MODEL
CHECK HANDOUT No.1

14. Fitting Model to Data: BASELINE MODEL
Discount Rate
Elasticity of Substitution
Depreciation rate
Harrod Rate of Growth
Rate of growth of Population growth
Initial Capital Stock (constant LCU units) ρ θ δd χ n
K(0)
0.035 1
0.01
0.0125
0.024
2 X 1013

15. Social Accounting Matrix
Source: Courtesy Prof. Terry Roe, GTAP Database

16. Information Technology
Factor Intensity
Sectors
Capital Intensity
Agriculture
0.5108
Information Technology
0.6345
Manufacturing
1.5562
Services
1.004
Source: SAM , GTAP

17. WDI Data

18. Growth acct: WDI

19. Baseline Model
Validation

20. Agriculture

21. Manufacturing

22. Services

23. Baseline Model results
Sector Shares in total output

24. Evolution of sectoral shares: Levels

25. BL: Factor Shares in Output

26. BL:Factor Shares

27. Labor Allocation Year Lm(t) Ls(t) LAGR(t) LIT(t) 2001 0.4343 0.1649
0.3645
2011
0.4815
0.1929
0.2982
2021
0.5064
0.2190
0.2528
2031
0.5185
0.2429
0.2205
2041
0.5233
0.2646
0.1968
2051
0.5236
0.2839
0.1790
2061
0.5215
0.3012
0.1653
2071
0.5181
0.3164
0.1546
2081
0.5140
0.3297
0.1461
2091
0.5098
0.3414
0.1393

28. Labor Allocation

29. Capital Intensity

30. BL: K/L Levels

31. IT SECTOR Year ITmfg ITser ITEXP 1991 0.0917 0.0222 0.8860 1992 0.0944
0.0231
0.8825
1993
0.0971
0.0240
0.8789
1994
0.0999
0.0249
0.8752
1995
0.1026
0.0259
0.8715
1996
0.1053
0.0268
0.8678
1997
0.1081
0.0278
0.8641
1998
0.1108
0.0288
0.8604
1999
0.1136
0.0298
0.8566
2000
0.1164
0.0309
0.8528
2001
0.1191
0.0319
0.8490
2002
0.1219
0.0330
0.8451
2003
0.1246
0.0341
0.8412
2004
0.1274
0.0352
0.8374
2005
0.1302
0.0364
0.8335
2006
0.1329
0.0375
0.8295
2007
0.1357
0.0387
0.8256
2008
0.1384
0.0399
0.8217
2009
0.1412
0.0412
0.8177
2010
0.1439
0.0424
0.8137
2011
0.1466
0.0437
0.8097

32. Transition Dynamics in Agriculture

33. Transition Dynamics: Agriculture

34. Agriculture: Transition Dynamics

35. Information Technology

36. Transition Dynamics: IT

37. Information Technology

38. Manufacturing

39. Transition Dynamics: Manufacturing

40. Manufacturing

41. Services

42. Transition Dynamics: Services

43. Services

44. Growth Accounting: Supply Side

45. Growth Accounting YEAR AGR. IT Mfg. Ser. TOTAL 1991 0.0111 0.0010
0.0221
0.0096
0.0438
2001
0.0102
0.0009
0.0212
0.0104
0.0427
2011
0.0095
0.0008
0.0204
0.0112
0.0419
2021
0.0089
0.0007
0.0196
0.0119
0.0411
2031
0.0084
0.0189
0.0125
0.0405
2041
0.0081
0.0006
0.0182
0.0131
0.0400
2051
0.0077
0.0175
0.0137
0.0395
2061
0.0075
0.0005
0.0169
0.0142
0.0391
2071
0.0072
0.0164
0.0146
0.0388

46. Growth Accounting: Baseline Model

47. Policy Experiment Jorgenson Effect
Fall in the price of IT relative to pm and ps
Increasing capital coefficients on production functions
Adding a shock of 10 percent to the TFP of the IT sector.

48. Jorgenson Effect

49. Jorgenson effect. ρ θ δd χ n K(0) 0.035 1 0.01 0.0225 0.024 2 X 1013
Discount Rate
Elasticity of Substitution
Depreciation rate
Harrod Rate of Growth
Rate of growth of Population growth
Initial Capital Stock (constant LCU units) ρ θ δd χ n
K(0)
0.035 1
0.01
0.0225
0.024
2 X 1013

50. Revised Capital and Labor Coefficients

51. Production Function Estimation
OLS FE LP K
0.3631
( )
0.3278
( )
0.35
( ) L
0.4362
( )
0.3776
(0.0270)
0.4703
( ) PF
0.1982
( )
0.2394
( )
0.63
(0.1769)

52. BHC INDEX
Year
OLS FE LP
2002
0.8014
0.993
0.796
2003
0.8142
1.013
0.806
2004
1.022
0.811
2005
0.867
1.115
0.842
2006
0.893
1.153
0.865
2007
0.921
1.197
0.892

53. BHC INDEX

54. Validation Compare Model output to data from the WDI
Contact author for code
Handout no. 2

55. GDP

56. GDP

57. MFG

58. MFG.

59. Services

60. Services

61. Agriculture

62. Agriculture

63. Labor Allocation

64. Sector Shares

65. Factor Shares

66. IT Sector Year IT Mfg. IT Serv. IT Exports 1991 0.061 0.004 0.936 1992
0.065
0.931
1993
0.069
0.927
1994
0.074
0.922
1995
0.078
0.005
0.917
1996
0.083
0.912
1997
0.088
0.907
1998
0.092
0.902
1999
0.097
0.006
0.897
2000
0.102
0.892
2001
0.107
0.007
0.887
2002
0.112
0.882
2003
0.117
0.876
2004
0.122
0.871
2005
0.127
0.008
0.866
2006
0.132
0.860
2007
0.137
0.855
2008
0.142
0.009
0.849

67. Transition Dynamics: Agriculture

68. Transition Dynamics: Agriculture

69. Information Technology

70. Transition Dynamics: IT

71. Transition Dynamics: Manufacturing

72. Transition Dynamics: Mfg.

73. Transition Dynamics: Services

74. Transition Dynamics: Services

75. Growth Accounting Year Agr. IT Mfg Serv. Tot. 1991 0.01444 0.00174
2001
2011
2021
2031
2041
2051
2061
2071

76. Growth Accounting