WHICH INFRASTRUCTURE MATTERS MORE FOR GROWTH: ECONOMIC OR SOCIAL? EVIDENCE FROM INDIAN STATES DURING 2001–2010

Abstract

This paper studies the relationship between infrastructure and output in 28 Indian states divided into general and special categories for the period 2001–2010. It develops a composite infrastructure index for each state in each category by considering both economic and social dimensions. We find that infrastructure only influences output in general category states. Among the different kinds of infrastructures, the social variant has a greater impact on output than the economic. Interestingly, we also find that, for both categories of states, output influences infrastructure more than infrastructure influences output. Causality analysis reveals unidirectional causality from output to infrastructure and from social infrastructure to economic infrastructure. No evidence of a statistically significant impact of infrastructure or any of its variants on output for the special category states was found. These findings question the effectiveness of additional funds provided for the development of special category states.