A Tale of Two States: Maharashtra and West Bengal

40 Pages Posted: 21 Sep 2006

See all articles by Amartya Lahiri

Amartya Lahiri

University of British Columbia (UBC) - Department of Economics

Kei-Mu Yi

University of Houston - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: June 2006

Abstract

In this paper the authors study the economic evolution between 1960 and 1995 of two states in India - Maharashtra and West Bengal. In 1960, West Bengal's per capita income exceeded that of Maharashtra. By 1995, it had fallen to just 69 percent of Maharashtra's per capita income. The authors employ a wedge methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the sources of the divergent economic performances. Their diagnostic analysis reveals that a large part of West Bengal's development woes can be attributed to: (a) low sectoral productivity, especially in manufacturing and services; and (b) sectoral misallocation in labor markets. These patterns, together with additional evidence on developments in the labor market, the manufacturing sector, and voting behavior, suggest a systematic worsening of the business environment in manufacturing in West Bengal during this period.

Keywords: Maharashtra, West Bengal, Indian states, development

JEL Classification: O11, O14

Suggested Citation

Lahiri, Amartya and Yi, Kei-Mu, A Tale of Two States: Maharashtra and West Bengal (June 2006). Available at SSRN: https://ssrn.com/abstract=931465 or http://dx.doi.org/10.2139/ssrn.931465

Amartya Lahiri (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604.822.8606 (Phone)

HOME PAGE: http://www.econ.ubc.ca/alahiri/

Kei-Mu Yi

University of Houston - Department of Economics

Houston, TX 77204-5882
United States

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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