Impact of the COVID-19 Pandemic on Industrial Recession in India and the Emerging Structural Breaks: Testing Unit Root Hypothesis

Impact of the COVID-19 Pandemic on Industrial Recession in India and the Emerging Structural Breaks: Testing Unit Root Hypothesis

Asim Kumar Karmakar, Tushar Das
Copyright: © 2023 |Pages: 13
DOI: 10.4018/978-1-6684-9089-1.ch013
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Abstract

In this paper, an attempt has been made to look into the effects of external shock generated by Pandemic on the industrial output growth in India by analysing the macroeconomic time series data generating process. The authors have carried out a number of tests concerning the stochastic behaviour and nature of trend of the annual industrial output growth at national level as well as for some major states for the period 1989-90 to 2020-21 locating possible structural break in the series. The authors observe that average annual growth rate of industrial production has decreased significantly in every sector in the lockdown period as compared to pre lockdown period. Testing of unit root hypothesis confirms the presence of stochastic trend in the logarithmic values of industrial output series both at the national and at the state level. The total production declined sharply during the lockdown and the structural break towards the fall in industrial production appeared before the lockdown. Hence, it seems that the lockdown by the pandemic may not be the primary source of industrial recession in India.
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Ii Literature Review

We find several studies relating to the data generating process of macroeconomic time series for India and other countries. The most frequently cited study on the U.S. macroeconomic time series data are Nelson and Plosser (1982) and Perron (1989).

Nelson and Plosser(1982) investigates whether macroeconomic time series are better characterized as stationary fluctuations around a deterministic trend or as non-stationary processes that have no tendency to return to a deterministic path. Using long historical time series for the U.S, they are unable to reject the hypothesis that these series are non-stationary stochastic processes with no tendency to return to a trend line. Based on these findings and an unobserved components model for output that decomposes fluctuations into a secular or growth component and a cyclical component, they infer that shocks to the former, which they associate with real disturbances, contribute substantially to the variation in observed output.

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