ECONOMETRIC MODELS – TECHNIQUES AND APPLICATIONS (1994)

Foreword
Preface
Index

Although a good book does not need an explicit recommendation, I feel honoured by the request of Dr. K. Puttaswamaiah, to express, in a foreword, my impression of this collection of papers.
The book reflects the high status of India in the world, being by far the largest
developing country in the non-communist world; in the way the USA is by far the largest developed nation among the developed, and China in the (ex) communist group of countries. In the past, original contributions to the theory of development have been made by Mahalanobis and Chakravarty—to mention two I have known myself—and in this we find work of today's leading econometrists. India has a much richer activity than the other large countries mentioned in the world of spiritual problems and, in connection with this, the role of economic thinking is relatively restricted. Notwithstanding this the present book consists of an impressive set of original contributions of economic thinking in applied versions.

April 27,1994   Jan Tinbergen
    Emeritus Professor
Erasmus University
      Rotterdam, Netherlands

Econometrics has come of age. It has produced theories and a host of applications in Economics and in other Social Sciences. In Economics, it has been applied to macroeconomics earlier, but over recent years, it has been
applied to every other field of economics including monetary economics, public finance, international trade, labour economics and economic development. Applications have also been tried out in diverse areas as education, law, health and transportation. In consequence, researchers as well as professional workers in Economics and other Social Sciences have evinced great interest in Econometrics.
'Econometrics' as a branch of Economics was evolved over the last fifty years,and dates back to the works of Jan Tinbergen, Ragnar Frisch and Henry Schulz. During this period, it was an essential ingredient in training in modern economics. Further, since some type of macroeconomic policy is inevitable in any modern economy and as any policy generally implies projections per se and of consequences of alternative assumptions and courses of action, Governments cannot simply do without Econometrics.
Many models have been developed with the purpose of estimating sectoral and income distributional aspects of various public policies. In the early stages of development in Econometrics, Henry Schulz of Chicago was a pioneer in ascertaining quantitative correspondence for the frequently used concepts in economic theory, for example, elasticity of demand. There arose the need to collect time series and separate seasonal and cyclical components from the assumed purely trend component. Wesley Mitchell and Arthur Bums were outstanding here. Early pioneers are Henry Moore and Kondratief. Henry Moore
was concerned with impact of weather. The Cowles Commission under the leadership of stalwarts like Koopmans, Hurwicz, Simon, Hood, Haavelmo and others helped to establish Econometrics on a solid foundation.
In Western Europe, Ragnar Frisch, a giant among economists, was grappling with measuring marginal utility and further with problems of multi-collinearity arising from the effects of interdependence among independent variables. Frisch was building careful functions for planning exercises. But, it was Tinbergen, Dutch saint-economist of remarkable originality and versatility, who virtually revolutionised the methodology of economics by conducting regression exercises on time series with a view to testing economic theories. Till then, economic propositions were being tested only with reference to internal logical consistency and a sort of impressionistic, correspondence with largely qualitative images of reality. Tinbergen thus changed the nature of economics itself by providing a separate, an additional test as in other sciences, for weighing the quantitative strength for theories and propositions.
There have been lot of contributions in India. Tinbergen's own students, S. hakravarty and others initiated researches in macro econometric modelling and planning modelling. The technical exercises underlying the draft outline of the Fifth Plan brought in the quantitative implications on the macro goals and balances of alternative distribution objectives. These were the pioneer efforts in what has later turned out as computable general equilibrium models. The Planning Commission under the leadership of S.P. Gupta carried out sensitivity exercises of the effects on economy of changes in population growth rate etc in the context of the Sixth Plan. B.S. Minhas has made distinguished contributions for production functions. Mahalanobis had versatile interest and his special contributions are in statistics and planning models. In recent years, there has been a great increase in the use of mathematics in the development and application of economic theory in India, as elsewhere.Researchers in India have been endeavouring of late to contribute to economic thinking in applied versions in originality. This work presents, in 16 chapters, papers selected from among various articles published in various issues of the Indian Journal of applied Economics, an analysis of research methodology, surveys and their methods and on improving the timeliness and
quality of survey data. An attempt is made in this work to provide a selective set of contributions on economic thinking in their applied aspects. Of the 16 papers in this work, two papers are on the research methodology and economic surveys, five articles are on estimation by linear regression models and other econometric functions and tests. The other important aspects covered are Bayesian regression analysis with an Edgeworth series prior distribution, Technological innovation and the Schumpeterian Hypotheses, Latent structure analysis—An illustrative application with development indicators. There are two case studies one relating to Disaggregated disequilibrium goods market model for the U.S.A. and the economic implications of Sri Lanka's debt problem.
These papers have all been referred and the suggestions by the referees have been incorporated. I wish to thank the contributors whose papers are included in this work for their contribution and their assistance in finalising the papers in he light of the reports of the referees. I wish to place on record my appreciation for their unstinted cooperation in my task of bringing out their papers in the Journals originally. I also thank the referees who willingly read through the papers referred to them and offered their candid comments. Prof. V.K. Srivastava has assisted me in the collection of papers and in refereeing them, I
appreciate and acknowledge his assistance. Prof. P.R. Brahmananda has been a source of inspiration to me in all my work and, in particular, in the task of my bringing out the Journal. I have discussed with him at length about this work and about the rise of 'Econometrics' in general. His support is acknowledged.
Jan Tinbergen, the first Nobel Laureate in Economics and Emeritus Professor of
Erasmus University, Rotterdam, Netherlands has given me all the support and
inspiration for my writing right from 1977 when I contacted him first and has been blessing me all through. He has been kindly associated as a Member of the Editorial Advisory Committee for the Indian Journal of Applied Economics. I wish to acknowledge with gratitude his whole-hearted support in my academic ventures and for his 'Foreword' to this work and for the very kind words used in it. The other Members of the Editorial Advisory Committee, viz., Prof. M.S. Swaminathan, Prof. Michael Lipton and Prof. Ashok Mathur have also been supporting me, and their guidance is acknowledged.
Shri M.L. Gidwani of Indus Publishing Company, New Delhi has brought out this
publication in a very short time and with all enthusiasm. I wish to place on record my appreciation for the splendid work he has done in bringing out this book. It is hoped that this work will be useful for all economists and econometricians and senior researchers and students in universities and other institutions who are interested in applied economics.

K.Puttaswamaiah

Dr. K. Puttaswamiah