Business Cycle Accounting of the Indian Economy

Abstract

Can we use neoclassical growth model to single out the important transmission channels through which primitives aected the Indian econ- omy and caused the remarkable growth of the period 1982 to 2002? In this paper, we answer the question by applying the new technique of business cycle accounting to the Indian economy. Business cycle accounting proce- dure is based on the idea that primitives aect the economy through three possible channels: through changes in productivity, through changes in la- bor market frictions or through changes in investment market frictions. Our results show us that the primary conduit of policies that brought about signi…cant growth in India was productivity that registered an un- precedented increase particularly in the nineties. Our results further indi- cate that changes in labor market frictions and investment market frictions did not play a signi…cant role.