Regional Economic Growth and Inequality
This chapter evaluates the economic performance of 15 major states in India and examines whether initially disparate states display any tendency towards convergence in real per capita income during the period 1960/1961–2006/2007. Though the growth performance of the states has improved in the post-reform period since 1991, the states have diverged in per capita income. The states following different steady-state paths are classified into three clubs—one convergent and two non-convergent. The regional divergence and club convergence are explained in terms of interstate variations in physical and social infrastructures, state-level policy reforms, foreign direct investment flows and economic structure. The poorly performing states could improve their relative economic position by undertaking investments in physical and social infrastructures and speeding up the reform process by liberalising investment and infrastructure policies. As industry and services are the major sources of regional divergence, any effort to reduce regional imbalance must focus primarily on these two sectors.
KeywordsForeign Direct Investment Gross Domestic Product Capita Income Regional Disparity Social Infrastructure
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