Encouraging private corporate investment in India
Publication dateSep, 2020
DetailsPublished in 2020 Edited Book “Financial, Macro and Micro Econometrics Using R” by Hrishikesh D. Vinod and C R Rao.
AuthorsLekha Chakraborty, Hirshikesh Vinod and Honey Karun
A typical macroeconomic regression of private corporate investment on public infrastructure investment, rate of interest, private credit, capital flows and output gap involves a mixture of stationary and nonstationary variables. Moreover, the available data series (2011–16) for estimating the regression for India is too short for asymptotic statistical inference. Hence we use maximum entropy (ME) bootstrap from R package “meboot” to confirm positive role of public infrastructure investment. The significant result has policy implications in terms of the current debate whether public investment “crowds-in” rather than “crowds-out” private corporate investment in India. We use another R package “generalCorr” to study whether the right-hand side variables “approximately cause” private investment, or are subject to the endogeneity problem. While finding evidence supporting public infrastructure spending to encourage private investment in India, we highlight new R tools for estimation and inference in many macroeconomic regressions.