Thursday, 12 April 2018

An Econometric Analysis of World GDP Share of India during 1960-2015

SocioEconomic Challenges, Volume 2, Issue 1, 2018

An Econometric Analysis of World GDP Share of India during 1960-2015

Debesh Bhowmik
PhD, Retired Principal and Associated with The Indian Econometric Society, India


In this paper author attempted to analyse India’s international GDP share during 1960-2015 with the help of econometric models taking the data from the World Bank. Semilog linear trend model and exponential trend model were used to find the trend of growth. Variance ratio test was used to show random walk. AR(1) model was used to show stationary, convergence and oscillations. ARIMA (1,1,1) model was tested for the stationary of the series. Forecast for 2035 of the AR(1) and ARIMA(1,1,1) models verified stationary long term patterns. Bai-Perron (2003) model explained to show structural breaks and the study of Bartoletto, Chiarini, Marzano & Piselli (2015) was followed to compute peaks, troughs, durations of cycles, amplitudes and slopes of both the short and medium cycles during 1960-2015. Hodrick-Prescott Filter (1997) model minimized the cycles for smoothness of trend of GDP share.The paper concludes that international GDP share of India has decreased at the rate of 0.459% per year during 1960-2015 and declined exponentially at the rate 0.259% per year significantly. The growth rate of the GDP share is downward sloping significantly till 2030.
It follows random walk without drift. Its AR(1) is stable, convergence and stationary. Forecast for 2035 of AR(1) is also converging. ARIMA(1,1,1) is stable and non-stationary and suffers from AC and PAC problems. Its forecast model for 2035 is tending towards stationary insignificantly. GARCH (1,1) showed excessive volatility. It has two downward structural breaks in 1968 and 1988 and one upward break in 2006 which are significant. The paper verified short and medium cycles to calculate peaks and troughs, duration of downturn and upturn, amplitude and slope of the cycles respectively. HP filter model makes the cycle more smooth with only one trough assuming lamda comprises 1600 but symmetric and asymmetric filter showed two peaks and two troughs. The frequency response function clarified its peaks and amplitude of cycle clearly.Keywords: international GDP share, exponential growth, structural break, non-stationary, HP filter, peaks,trough.

JEL Classification: N13, N15, O21, O24, O57, O10.
© The Author, 2018. This article is published with open access at Sumy State University.

1. Introduction

The world’s GDP share of India is an important indicator which can explain the nature of Indian economic development in comparison to other international economies. During ancient past of economic development of India, it was evident that India’s world GDP share was highest till 1500 AD and India was the dominant country. During 1500-1650, China was dominant followed by India, and then during 1650-1750, India was dominant followed by China. Since 1870, the world scenario changed rapidly due to rise in western civilization and industrial revolution where Europe was the dominant country and India and Chinese GDP started to decline rapidly. After the First and the Second World Wars, USA’s dominance in trade, finance and commerce outweigh UK dominance and USA became the largest GDP share holder in the world up till now. And India’s share has been falling till 1993, and then upswing started in but it is too little in comparison to other nations. During 1AD, India’s share was 33%,followed by 30% in 1000AD,24% in 1500-1700AD, 17% in 1820AD,7% in 1913, and now it is 2.79% in 2015 respectively. But, within 2025, China will recover his previous historical dominance in terms of GDP in the world. In Figure 1, India, China and other nations’ world GDP shares are plotted during 1AD-2008AD for comparative study.


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