ARTICLES / 2

Does Interest Rate Differential Determine Exchange Rate in India?
Pradyumna Dash and L.M. Bhole

While the Mundell-Fleming model predicts that a change in interest rate is necessary to stabilise exchange rate, the empirical validation of the effectiveness of such policy stance has not been very strong in economic literature. This paper examines the relationship between interest rate and exchange rate in India during June 1995 to December 2009 using Johansen’s cointegration procedure. The results show that there was one equilibrium relationship among exchange rate, interest rate differential, expected exchange rate, relative price level, expected inflation, money supply, and intervention. It finds that there was no causal relationship from interest rate differential to exchange rate in India. It further finds that the causal relationship flowed from exchange rate to interest differential in India.

Pradyumna Dash is Assistant Professor of Economics, Indian Institute of Management, Indore,
Email:pradyumna.dash@gmail.com and pradyumna@iimidr.ac.in 
L.M. Bhole is Professor of Economics, Department of Humanities and Social Sciences, Indian Institute of Technology, Mumbai. Email: bhole@hss.iitb.ac.in  ; www.hss.iitb.ac.in/faculty/bhole  .
 

Education Subsidy, Adult Unemployment and the
Incidence of Child Labour in an Open Economy
A Three-Sector General Equilibrium Analysis
Runa Ray and Biswajit Chatterjee

This paper considers a competitive general equilibrium model of a small open less developed economy suffering from unemployment problem in the adult labour market on the one hand, and from the existence of a child labour market on the other hand. There are three sectors in the model. The rural sector of the economy produces exportable commodity using adult and child labour. One of the urban sub-sector produces non-traded intermediary using adult labour and capital. The other urban sub-sector is the tariff-protected import competing sector of the economy that produces its product using adult labour and a non-traded intermediary input. There is presence of urban adult employment but the other inputs are fully employed. The paper examines the effectiveness of alternative non-trade policies on the incidence of child labour as well as on urban adult unemployment.

The main results of the paper are:

• Government encouragement to school education is effective in eradicating child labour incidence but does not have any impact on urban adult unemployment rate.

• Education cess on urban workers is effective in encouraging school enrolment but may not be effective in curtailing either child labour incidence or urban adult unemployment. 

• Unemployment allowance to urban adult workers will not unambiguously curtail either child labour incidence or urban adult unemployment problem. Moreover, it does not have any impact on the number of school-going children.

• Increase in adult literacy rate will create favourable impact on school enrolment of children as well as on child labour supply. There will be no change in other variables in the system.

Runa Ray, UGC Teacher Fellow, Department of Economics, Jadavpur University, Calcutta.
Email: runa_maju@yahoo.co.in 
Biswajit Chatterjee, Professor of Economics, Chair, Planning & Development Unit & Dean,
Faculty of Arts, Jadavpur University, Calcutta.
Email: chatterjeeb@vsnl.net 
 

ARTICLES / 4

Comparing the Efficiency of the
Indian Pharmaceutical Firms
A Meta-Frontier Approach
Mainak Mazumdar and Meenakshi Rajeev

This paper examines the competitiveness of the Indian pharmaceutical firms by computing the technical efficiency and the technological gap ratio (TGR) for the different groups of firms. The groups of firms have been conceptualised on the basis of their size, strategies and product variety produced by them. The result of the current study indicates that compared to small firms, large firms have high level of technical efficiency with negligible TGR. We also find that in spite of growing importance of R&D, the benefit of undertaking R&D is negligible. It is also noticed that in the context of India, firms that are vertically integrated and produce both bulk and formulation drug exhibit higher efficiency. However, in contrast to popular belief the analysis also reveals that increased export earning do not equivalently lead to higher efficiency.

Mainak Mazumdar, Ph.d Fellow, Institute for Social and Economic Change (ISEC), Bangalore.
Email: mmajumder@isec.ac.in , mainakecon@gmail.com 
Meenakshi Rajeev, Professor, Institute for Social and Economic Change (ISEC); Centre for Economic Studies and Policy,Bangalore. Email: meenakshi@isec.ac.in 

ARTICLES / 5

Migration Patterns in Hill Economy of Uttarakhand
Evidence from Field Enquiry
I.C. Awasthi

Out-migration has been the common phenomenon in the hill region of Uttarakhand, which is closely related to the economic backwardness. Apart from engaging in multiple economic activities, migration has emerged as an important household strategy to cope with the seasonality and uncertainty of production. Almost half of the surveyed households report out- migration. Our enquiry has revealed this phenomenon clearly. Logistic regression results evidently lend credence to our postulations that a large  proportion of out-migrants are primarily motivated by push factors.

I.C. Awasthi, Joint Chief, Institute of Applied Manpower Research, Delhi.
E-mail: icawasthi@rediffmail.com  .

ARTICLES / 6

Occasionally Unchanging CPI
Some Methodological Issues
Shrikant Kolhar

Several times since 2006, the Consumer Price Index for Industrial Workers did not change for
a few months in a row. This article identifies the practice of rounding CPI to the nearest
integer and then reporting it as the cause for this error or data anomaly. The article goes on
to suggest, based on procedures followed by other countries, a suitable practice that can rectify
this error. Finally, the article points to the inaccuracies in intra-year (seasonally adjusted)
measures of inflation relative to year-over-year measures in the presence of rounding errors.
Unfortunately expert economists, and an RBI technical group, have been recommending
adopting intra-year measures of inflation in lieu of the existing year-over-year measures.

Shrikant Kolhar is a doctoral candidate in Economics & Social Sciences area at the Indian Institute of Management, Bangalore.Email: shrikantk04@iimb.ernet.in 
 

ARTICLES / 7

Health, Labour Supply and Wages
A Critical Review of Literature
Amrita Ghatak

This article addresses the research question, how does general physical health status influence the labour supply behaviour and labour productivity? It deals with the issues that are dealt by the economists to explain the mechanism through which health as a form of human capital is related to labour productivity and labour supply decision. It focuses on the definition andmeasurements of health, theories that try to explain the health-productivity linkage, followed by a description of empirical studies that address the issue both at the macro and micro levels. The review identifies the knowledge gaps, important for further research in this area. 

The author is a PhD scholar at the Institute for Social and Economic Change, Bangalore.
E-mail: amrita@isec.ac.in, amritaeconomics@gmail.com 

COMMUNICATION FOR DEBATE & RESEARCH / 1

 It was all Gonna Trickle Down
What has Growth in India’s Advanced Sectors Really Done for the Rest?
Geraint Johnes

A theory is developed in which the extent to which growth in advanced industrial sectors
trickles down to other sectors is dependent upon, capital market frictions, migration, and the
strength of inter-industry linkages. It is shown that perverse results can arise, and that the
efficacy of any policies that rely on tricke-down is therefore an empirical issue. Using data
from India, we investigate whether growth in the advanced sectors generates growth elsewhere
in the economy, and find that it does not.

Geraint Johnes, Lancaster University Management School, Lancaster, United Kingdom.
Email: G.Johnes@lancaster.ac.uk 

COMMUNICATION FOR DEBATE AND RESEARCH / 2

Skilled-Unskilled Wage Gap in a Small Open Economy
The Role of Trade Liberalisation
Sudeshna Mitra and Kausik Gupta

The paper attempts to analyse the impacts of a trade liberalisation policy in terms of a reduction of tariff rate on the skilled- nskilled wage gap and also on the level of welfare of developing countries. A neoclassical full employment four-sector model has been developed for this purpose. The paper finds out that a reduction in the rate of tariff on the import- competing sector of the economy may decrease the wage gap between the skilled and unskilled workers of the economy under certain conditions. Moreover, it may improve the level of welfare of the country under some reasonable circumstances. In this paper, the effect on the welfare level of the economy has been shown by considering a social utility function explicitly.

Sudeshna Mitra, Department of Economics, St. Paul’s C. M. College, Kolkata, West Bengal.
Email: sudeshna1665@yahoo.co.in 
Kausik Gupta, Department of Economics, Rabindra Bharati University, Kolkata, West Bengal.
Email: kausik2k1@rediffmail.com 
 

Land Reforms in Developing Countries
Do They Really Help!
(Author: Michael Lipton, pp. XV+456. Oxon, England: Routledge, 2009)

Reviewed by Dr. V.M. Rao, Institute for Social and Economic Change, Bangalore