Madhya Pradesh: Does Agriculture Determine the State’s Growth Trajectory?

Abstract

This article empirically analyses whether agricultural growth performance determines the growth trajectory of the economy of an Indian state, namely Madhya Pradesh. Long-term growth trends of nearly three decades (1981–2011) in Madhya Pradesh show that fluctuations in agricultural growth and Gross State Domestic Product (GSDP) clearly coincide and have a considerable impact on the overall growth of the state’s economy. In examining this, the agricultural terms of trade are first introduced to capture the relative price responsiveness of agricultural supply in the state. Structural breaks, cointegration and an error correction mechanism are used to explore the long-term relationship between terms of trade, agricultural growth and GSDP growth. Findings show that agricultural fluctuations explain nearly half of fluctuations in the growth of the state economy while agricultural supply remains responsive to price and economic incentives. The analysis suggests that agricultural growth performance remains central to achieving any higher growth trajectory for the state. JEL Classification: C22, C50, Q11, Q18