Growth performance of Indian states

This article is concerned with evaluating the growth performance of states in the Indian Federation. This was sought to be done by estimating growth equations for a group of 19 states in India as well as sub-groups of these states during the period from 1981–1982 to 2004–2005. It has been found that, systematically, the contribution of educational attainment (social sector capital) to the growth process is larger than the contribution of physical capital. An important concern in the article is whether growth regressions estimated for a large group of 19 states can be replicated for smaller sub-groups. The problem of parameter heterogeneity is investigated, and the results of this study show that there is considerable parameter heterogeneity in the growth equations across groups. Rates of convergence estimated in this article also vary from extremely low levels (in the absence of the education variable) to more than 10% (in the presence of the education variable). The results of this study thus point to the great importance of education in improving the growth performance of Indian states.