Structural Change and Economic Growth in India—A State-Wise Analysis

Abstract

This paper reviews the recent literature on structural change, human capital and economic growth and examines the relationship between structural change and economic growth across 14 major Indian states from 1993–94 to 2011–12. Calculating income share for various economic activities and following in the line with Dietrich for NAV and MLI, McMillan and Rodrik for within and static effects, Timmer et al. for within effect, static and dynamic effects, it estimates structural change in income for 14 major states from 1993–94 to 2011–12. There has been an increasing trend in patterns of structural change as evident by NAV and MLI across sectors to contribute to the growth process of per capita real income. Using catch up regression for absolute convergence, it finds the evidence of absolute beta divergence meaning by relatively richer states have grown faster than poorer counterparts. Including structural change in income and employment in industrial sector (high intensity) along with other control variables such as per capita investment, human capital, initial level of per capita real income in cross-sectional regressions, it finds significant contribution of structural change for economic growth across Indian states during this period. However, some of the fundamental variables are although in expected line, they are not significant which calls for re-examination of these issues within suitable framework such as dynamic panel data analysis that will sort out some of the problems encountered in cross-sectional growth regression.