Whither the Indian Union? Regional Disparities and Economic Reforms

Abstract

In this paper we investigate the process of convergence/divergence across Indian states. After surveying the main economic reforms implemented during the last decades in the Indian Union, we conduct an econometric study of the determinants of economic growth in the neoclassical frame of the Solow model. One of the main novel aspects of our convergence analysis is the attention paid to the spatial pattern of growth across Indian states. Making use of spatial econometric tools, we control for two different kinds of spatial interaction: distance and neighbourhood. Our results suggest that the gap between poor and rich states has constantly increased during the 1980s and the 1990s. Specifically, we find that winners were those states that benefited the most from the recent process of reform and liberalization, thanks also to their geographical advantage and to the presence of a developed service sector. Losers were instead the landlocked and highly populated states with a predominant agricultural sector and a low level of innovation.

Keywords: Regional inequality, economic growth, structural change, spatial effects, India

JEL Classification: C23, O18, O53, R11