Understanding Regional Economic Growth in India

Jeffrey D. Sachs, Nirupam Bajpai and Ananthi Ramiah
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Jeffrey D. Sachs: Director, The Earth Institute at Columbia University Columbia University B-16 Hogan Hall, 2910 Broadway New York, NY 10027 USA
Nirupam Bajpai: Senior Development Advisor & Director, India Program Center for Globalization and Sustainable Development The Earth Institute at Columbia University Columbia University B-16 Hogan Hall, 2910 Broadway New York, NY 10027 USA
Ananthi Ramiah: Center for International Development (CID) Harvard University 79 John F. Kennedy St. Cambridge, MA 02138 USA

Asian Economic Papers, 2002, vol. 1, issue 3, 32-62

Abstract: This paper aims to explain the growth experiences of 14 major states of India between 1980 and 1998. Using two measures of convergence, σ-convergence and ß-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 period, whereas the poorer states did not. Divergence was most notable within the poorer group of states. A remarkable 82 percent of the cross-state variation in growth is explained by just the urbanization variable in India, with no hint of any conditional convergence after controlling for the degree of urbanization. The regression 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. Copyright (c) 2002 Center for International Development and the Massachusetts Institute of Technology.

Date: 2002
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