Inter-state Growth Spillovers in Indian Major States: An Empirical Analysis

Abstract

This article verifies the inter-state linkages of economic growth across Indian states in a panel framework. Data have been used for the 15 major states for 1980–1981 to 2013–2014. For studying the long-run association between aggregate output of a state and that of the rest of the states, panel cointegration techniques have been used. Fully modified ordinary least squares estimation technique is used to find long-run coefficients. In addition to it, inter-state growth spillovers of output for three principal sectors of economy have been verified separately. The findings confirm the existence of inter-state association in the long run for the aggregate output as well as the sectoral output. Unidirectional causality runs from rest of the state’s output to a state’s output. There has also been a substantial increase in the extent of linkages after the reforms for the aggregate output. Though coefficient is positive, agricultural output has witnessed a decrease in the extent of linkages after the reforms. But, the linkages among states for industrial and service sector output have been improved as a result of the reforms. With the increasing flow of goods and services, growth spillovers are evident and economic spillovers of states are complementary. Removing barriers on inter-state trade, flow of investment, knowledge, and services will supplement to growth spillover among Indian states.