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The IUP Journal of Applied Economics

Oct'15

Articles

Nonlinear Dependence and Conditional Volatility in the Indian Rupee Exchange Rate

-- Madhumita Chakraborty

There is a vast literature on asset return predictability in a linear regression framework. However, there is increasing evidence that asset returns may be better characterized by a model which allows for nonlinear behavior. In this paper, an attempt is made to examine the nonlinear behavior of returns of four exchange rates of Indian rupee with respect to Euro, British Pound, US Dollar and Japanese Yen, by utilizing tests based on nonlinear modeling. The application of BDS test strongly rejects the null hypothesis of independent and identical distribution of the return series as well as the ARMA residual series for all the exchange rates under study. This is consistent with nonlinear dependence in the return series. However, it is not enough to merely identify nonlinear dependence. So, the study investigates whether the nonlinear dependence is caused by predictable conditional volatility. It is found that GARCH(p, q) model fits all the market return series adequately and accounts for the nonlinearity found in the series.

Rupee Volatility and Its Impact on the Macroeconomic Variables of India

--Dhaneesh Kumar T K and P K Sudarsan

Against the background of international scenario of exchange rate volatility, the present paper analyzes rupee volatility and its impact on the macroeconomic variables of India considering data for the period 1997-2013. The evidence shows that the exchange rate volatility of India is not purely a domestic phenomenon. Further, the results of log-log regression model show that the negative impact of depreciation is limited to inflation and trade balance. All other variables show positive impact. Thus, strong empirical evidence is obtained to conclude that the impact of appreciation on macroeconomic variables is higher as compared to that of depreciation on these variables.

Concentration and Efficiency in Indian Manufacturing: A Regional Study

--A M Swaminathan, M Gupta, A Tiwari and N Prakash

Regional concentration of firms has several effects on the development of firms. While theories point out different relationships between firm’s efficiency and regional concentration, this study analyzes such relationships for nine Indian manufacturing industries located in 17 Indian states using Data Envelopment Analysis (DEA) and the Tobit model. Results on efficiency show that technical efficiency is better than allocative efficiency, indicating betterment of technology and at the same time excess use of resources in Indian industries. Besides, regional concentration of industries is found to have a negative relationship with efficiency, which supports the ‘Quiet Life Hypothesis’ of Hicks. Tobit analysis also shows the prevalence of negative relations between efficiency and concentration in Indian industries. Just-in-time management of inventories could be encouraged and measures to see that this is successful in industries should be the aim of reforms.

Economic Growth and Carbon Emission in Nigeria

-- Ekundayo P Mesagan

This study focuses on the relationship between carbon emission and economic growth in Nigeria from 1970 to 2013 by employing carbon emission, real gross domestic product, capital investment, and trade openness in the analysis. Error correction model is used and the results clearly show that in the first period, economic growth positively impacts carbon emission, while it negatively impacts carbon emission in the lagged period. It is also revealed that trade openness and capital investment positively impact carbon emission in Nigeria. Thus, it is recommended that since a reduction in GDP (in an attempt to curb carbon emission) can harm the country’s economic progress, it is expedient to look for ways to promote green growth in the country. Policy makers must put in place measures that guide against the dumping of environmentally unfriendly products into the country, and in order to ensure that the capital investment does not contribute to carbon emission in the country, Nigeria can use its infrastructure deficit to leapfrog to greener investments by using environmentally sound technologies and innovations that are currently available.