Abstract
where G is the growth rate of aggregate demand, and gi and Ei are the actual growth rate and the income elasticity of output for the ith sector respectively. GEi is defined as the expected growth rate of the ilh sector.2 Measure (2) is preferred to (1) as the latter is unnecessarily sensitive to extreme deviations in sectoral growth rates. Swamy then correlated both measures of imbalance with the aggregate growth rate, G. Coefficients were positive and statistically significant for all periods except 1938-1948. He concludes that the 'statistical evidence does not corroborate the balanced growth theory.' 3 Swamy's results have to be interpreted carefully. In the first place there are weaknesses in the statistical techniques he adopts. These result from his reliance on the correlation between G and V. This correlation is questionable on two counts. Firstly, where the k sectors form a large proportion of aggregate output, we would expect high sectoral growth rates to be accompanied by a high growth of overall output. The association between V and G merely reflects a mutual component in both (i.e., gi). However, since Swamy disaggregated into 13 manufacturing sectors, this spurious element may not be important. Secondly, variations in G automatically affect V since one of the elements of the latter is GEi. This will generate a positive correlation between G and V when the sign of (gi GEj) is negative (and a negative correlation when the sign is positive). Take the limiting case,
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call