Identification of temporal fundamental economic structure (FES) of India: An input–output and cross-entropy analysis

Abstract

This study provides an understanding of the economic structure and structural changes in the Indian economy utilizing the fundamental economic structure (FES) approach. The FES construct states that certain selected characteristics of an economy will vary predictably with economic size, as measured by gross national product, population and total gross output. The main problem addressed in this study concerns the question whether identifiable patterns of relations between various macro-aggregates and economic transactions can be revealed via input–output tables. Jensen, West and Hewings have discussed the tiered, partitioned, and temporal approaches to the identification of FES using input–output tables. This study addresses the following four research questions: Does a temporal FES exist for the Indian economy? What proportions of the cells are predictable? Can the 1968–1990 temporal FES predict 1993–1994 table? Does a temporal FES manifest an enhanced understanding of the Indian economic structure? Regression analyses are used to identify the FES and non-FES cells for the Indian economy. Small sample estimation issues are addressed applying the cross-entropy approach. The input–output tables for 1968–1969, 1973–1974, 1978–1979, 1983–1984, 1989–1990 and 1993–1994 provide data for the analysis. Analysis reveals that temporal FES includes primary, secondary and tertiary sectors as components. This research has extended the notion of FES to include weak, moderate and strong FES cells.