Mind the Gap: Is Economic Growth in India Leaving Some States Behind?

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper examines how growth has varied across India's states. It finds that (i) the income gap between rich and poor states has widened; (ii) rich and faster-growing states have been more effective in reducing poverty; (iii) poor and slower-growing states have had little success in generating private sector jobs; (iv) labor and capital flows do little to close income gaps; and (v) the volatility in economic growth is greatest in poor states. Differences in states' policies affect the cross-state pattern of growth. Greater private sector investment, smaller governments, and better institutions are found to have a positive impact on growth.

Growth Convergence and Spillovers Among Indian States: What Matters? What Does Not?

“…al. (2006), Purfield (2006) and Misra (2007). The studies differ across a number of dimensions, including the sample period, coverage of states, data sources, and estimation methodology ( Table 1).…”

“…Misra (2007) uses compound annual growth rates. Others attempt to take into account the business cycle by constructing the data on 5 years apart (Aiyar, 2001) or the data on 5 years average over non-overlapping periods (Purfield, 2006). Others apply their own justification for the time interval.…”

Economic reforms, growth and well-being: evidence from India

“…Thus, higher education or the availability of skills is one of the factors which have pulled up the growth rates of some states. Purfield (2006) argued that the states which had liberalised factor markets and good institutions performed better. The author noted that the gap between the real per capita income of the rich and poor states has increased since the reforms.…”

“…4 In this study we consider only 17 major states covering approximately 90% of the country's population. 5 See Ahluwalia (1999Ahluwalia ( , 2002; Bhattacharya and Sakthivel (2004); Cashin and Sahay (1996); Dasgupta et al (2000); Kurian (2000); Nagaraj, Varoudakis, and Veganzones (1998); Pradeep and Chen (2012);Purfield (2006); Rao, Shand and Kalirajan (1999) ;Sachs, Bajpai, and Ramiah (2002); Shand and Bhide, (2000); Subrahmanyam (1999). 6 We also considered using social sector expenditure of the state governments as an indicator of health.…”

Regional concentration of FDI in post-reform India: A district-level analysis

“…Regarding India, some tentative evidence points into the same direction. It has been noted repeatedly that FDI flows to India are heavily concentrated in a few states (e.g., Basu 2005;Purfield 2006). Mukim and Nunnenkamp (2012) observe that various districts did not receive any FDI inflows since the early 1990s.…”