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Monthly Archives: February 2013

Habit Persistence, Undernourishment and Gains from Trade

24 Sunday Feb 2013

Posted by paragwaknis in diverse perspectives, growth, macroeconomics, socioeconomic perspectives

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david atkin, food preferences in India, gains from trade, habit persistence

While I was studying in New Delhi, I used to pine for food from my homestate (may be even hometown or just homefood!). That is what migrants usually do and you find great markets in some pockets of bigger cities which cater to migrants preferences for certain kinds of food. This explains why there is a China Town, a Little India or a Little Italy in almost all bigger cities in North America. Hell, there is even little Madras in an area called Rasta Peth in Pune! New Delhi’s Delhi Hat has food stalls from all over India, but I am pretty sure most of the visitors flock to their state’s food stall. Does such kind of food preference have any economic implications at large? The answer is yes according to David Atkin from Yale.

In an innovative paper, he shows that habit persistence in food preferences among people from different regions in India imply much lower gains from trade than otherwise, should we decide to allow a freer movement of commodities between states. It also might illustrate how our somewhat fixed preferences for certain kinds of food may hold us back from getting the necessary nutrition for a healthy life!

Update: research on Indian economy

11 Monday Feb 2013

Posted by paragwaknis in macroeconomics, socioeconomic perspectives

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Have not blogged for a while as the semester got busy and the teaching honeymoon (2 courses) was over. Nonetheless here are a few of the papers that have been piling up on my desk to read and blog!

1. Barriers to Household Risk Management: Evidence from India

Why do many households remain exposed to large exogenous sources of nonsystematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and nonprice factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to US insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints, and limited salience are significant nonprice frictions that constrain demand. We suggest possible contract design improvements to mitigate these frictions. (JEL D14, D81, O12, O13, O16, O18, Q12)

2. Loan Regulation and Child Labor in India

We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types. Specifically, we build a model economy that replicates the current outcome with a loan rate cap and no lender discrimination by risk using a survey of rural lenders. Households borrow primarily from informal moneylenders and use child labor. Removing the rate cap and allowing lender discrimination markedly increases capital use, eliminates child labor, and improves welfare of all household types.

3. Misallocation and Manufacturing TFP in China and India

Resource misallocation can lower aggregate total factor productivity (TFP). We use microdata on manufacturing establishments to quantify the potential extent of misallocation in China and India versus the United States. We measure sizable gaps in marginal products of labor and capital across plants within narrowly defined industries in China and India compared with the United States. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the United States, we calculate manufacturing TFP gains of 30%-50% in China and 40%-60% in India.

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