Mind the Gap-Is Economic Growth in India Leaving Some States Behind?

Abstract

This paper examines how growth has varied across India's states. It finds that (i) the income gap between rich and poor states has widened; (ii) rich and faster-growing states have been more effective in reducing poverty; (iii) poor and slower-growing states have had little success in generating private sector jobs; (iv) labor and capital flows do little to close income gaps; and (v) the volatility in economic growth is greatest in poor states. Differences in states' policies affect the cross-state pattern of growth. Greater private sector investment, smaller governments, and better institutions are found to have a positive impact on growth.