Understanding Regional Economic Growth in India
Abstract
This paper aims to explain the growth experiences of 14 major states of India between 1980 and 1998. Using two measures of convergence, s-convergence and û-convergence, we examine whether per capita incomes in the states have been converging or diverging. By both standards of convergence, India demonstrated overall divergence during 1980–98, as well as during both the pre- reform and post-reform subperiods. Interestingly, the richer states experienced a degree of convergence during the post-reform pe- riod, whereas the poorer states did not. Divergence was most no- table within the poorer group of states. A remarkable 82 percent of the cross-state variation in growth is explained by just the ur- banization variable in India, with no hint of any conditional conver- gence after controlling for the degree of urbanization. The regres- sion estimate shows that a 10 percentage point higher rate of urbanization is associated with 1.3 percentage points per year higher rate of annual growth.