Total Factor Productivity in Indian Electronic Sector after Liberalisation: Sources and Outcomes

This paper analyses the efficiency and productivity growth of the Electronic Sector of India in the liberalization era since 1991. The study gives an insight into the process of the growth of one of the most upcoming sector of this decade. This sector has experienced a vast structural change along with the changing economic structures in India after liberalisation. With the opening up of this sector to foreign market and incoming of multinational companies, the environment has become highly competitive. The law that operates is that of Darwin’s ‘Survival of the fittest’. Existing industries experience a continuous threat of exit due to entrance of new potential entrants. Thus, it becomes inevitable for the existing industries in this sector to improve productivity growth for their survival. It is thus important to analyze how the industries in this sector have performed over the years and what are the factors that have contributed to the overall output growth.

Lack of Critical Slowing Down Suggests that Financial Meltdowns Are Not Critical Transitions, yet Rising Variability Could Signal Systemic Risk

Complex systems inspired analysis suggests a hypothesis that financial meltdowns are abrupt critical transitions that occur when the system reaches a tipping point. Theoretical and empirical studies on climatic and ecological dynamical systems have shown that approach to tipping points is preceded by a generic phenomenon called critical slowing down, i.e. an increasingly slow response of the system to perturbations. Therefore, it has been suggested that critical slowing down may be used as an early warning signal of imminent critical transitions. Whether financial markets exhibit critical slowing down prior to meltdowns remains unclear. Here, our analysis reveals that three major US (Dow Jones Index, S&P 500 and NASDAQ) and two European markets (DAX and FTSE) did not exhibit critical slowing down prior to major financial crashes over the last century. However, all markets showed strong trends of rising variability, quantified by time series variance and spectral function at low frequencies, prior to crashes. These results suggest that financial crashes are not critical transitions that occur in the vicinity of a tipping point. Using a simple model, we argue that financial crashes are likely to be stochastic transitions which can occur even when the system is far away from the tipping point. Specifically, we show that a gradually increasing strength of stochastic perturbations may have caused to abrupt transitions in the financial markets. Broadly, our results highlight the importance of stochastically driven abrupt transitions in real world scenarios. Our study offers rising variability as a precursor of financial meltdowns albeit with a limitation that they may signal false alarms.