Abstract
This chapter reports on an illustrative application of the method multidimensional development ranking built up in the preceding chapters. It poses the question whether in 2010–11 India was at a higher level of development than it had been in 2004–05. The choice of these specific years was motivated by the desire to investigate whether or how much the global financial crisis of 2007 and 2008 affected the levels of inequality and development in the Indian economy. In a study of multidimensional development, data availability often constrains the choice of the years because the data on the different attributes often come from surveys conducted at different dates. 2010–11 was a compromise between the need to choose a post-crisis year and the need to ensure that dates of the data on the different attributes were as near to the chosen year as possible. Similarly, the reference year 2004–05 was a compromise between the need to choose a year prior to the global crisis (without going too far back in time) and the need to ensure that data on the different attributes related to this particular year or an adjacent one. It is seen that if we confine ourselves to inequality comparison by means of the conventional notion of Lorenz dominance, no definitive judgment is possible. The extended (fuzzy) version of Lorenz dominance developed in this book, however, helps us in getting around the problem of non-comparability.
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Notes
- 1.
There are two different types of studies on global inequality. One of these uses countries as the units of observation and recognises explicitly that what these studies call global inequality is actually inter-country inequality and can be interpreted as global inequality only under the assumption that any resident of a given country enjoys the per capita income of the country. In the other type of studies, a similar assumption for quantiles of the income distribution seems to be implicit. This second procedure (sometimes called the global accounting method) decomposes national incomes by, say, population quintiles or deciles and compares these across countries. Obviously, the assumption that all members of the population in a given quantile of the income distribution in a country enjoy the same level of income is implicit in the procedure.
- 2.
While, strictly speaking, the global crisis of 2007 seemed to be directly responsible only for the vertiginous fall in the growth rate in the year 2008–09, it can be argued that it was indirectly responsible for the increase in volatility in the economy over a longer period. The remarkably quick recovery registered in 2009–10 and 2010–11 was primarily due to the aggressively expansionary economical policies pursued in the Indian economy. In fact, for these two years, the provisions of the Fiscal Responsibility and Budget Management Act that had been passed in 2003 and that had declared the containment of the fiscal deficit within reasonable limits to be the guiding principle of fiscal policy were deliberately ignored in order to give priority to the task of boosting effective demand. However, these expansionary policies were obviously a reaction to the steep decline in the growth rate in 2008–09. From 2011–12 onwards, however, fiscal rectitude has again been a salient feature of government policies. It can be argued, therefore, that the reasons behind the increase in economic volatility observed in the Indian economy in the first 15 years or so of the twenty-first century are traceable to the 2007 global crisis.
- 3.
The literature also contains an extensive discussion and debate on the question whether volatility affects the growth rate of income in an economy and, if that is the case, whether the effect is positive or negative. See, for instance, Aizenman and Marion (1993), Bernanke (1983), Black (1987), Lucas (1987), Mirman (1971) and Ramey and Ramey (1995). As noted in the text, however, our concern in this connection is with the level, rather than with the growth rate, of income. In the literature cited above there is no reference to any empirical evidence of a negative effect of volatility on the level of income.
- 4.
While economists are not unanimous on whether the Indian economy in the 2000s was demand-constrained or supply constrained (or a combination of the two types), it stands to reason to hypothesise that at the time of the global crisis, the shock came from the demand side and, at least temporarily, the economy was demand-constrained. Moreover, most experts seem to be of the opinion that demand-related problems continued to play an important role in the subsequent years as well. Indeed, the parallel movement, noted in the text, of the growth rate of GDP and the strength of the fiscal and other stimuli provided by the government seems to give support to this view. Moreover, it has been shown that even if one takes a “structuralist” view of the economy and recognises that the different sectors of the economy may have different constraining factors, demand side factors occupy an important position in an overall assessment of the Indian economy in the time span of our interest. (See, for instance, Rakshit (2009, 2012 and 2016)).
- 5.
Ties in ranks are broken arbitrarily subject only to the requirement that each row sum and each column sum in the table remain 1.
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Banerjee, A.K. (2020). An Illustration: Multidimensional Development and Inter-State Inequality in India in the 2000s. In: Measuring Development. Themes in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-15-6161-0_7
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