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A Tale of Two States: Maharashtra and West Bengal

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  • Amartya Lahiri

    (University of British Columbia)

  • Kei-Mu Yi

    (Federal Reserve Bank of Philadelphia)

Abstract

In this paper we study the decline of West Bengal relative to Maharashtra, historically two of the most important states of India. In 1960, West Bengal's per capita income exceeded that of Maharashtra, the third richest state at the time. By 1993, it had fallen to just 69 percent of Maharashtra's per capita income. We employ a "wedge" methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the output and factor market sources of the divergent economic performances. Our diagnostic analysis reveals that a large part of West Bengal's development woes can be attributed to: (a) low sectoral productivity, especially in manufacturing and services; and (b) sectoral misallocation in labor markets between the manufacturing sector and the other sectors of the economy. We also present evidence on the labor market, the manufacturing sector, and public infrastructure that suggest a systematic worsening of the business environment in West Bengal during this period. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 12 (2009)
Issue (Month): 3 (July)
Pages: 523-542

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Handle: RePEc:red:issued:06-220

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Keywords: West Bengal; Indian states; Development; Wedges;

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References

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Citations

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Cited by:
  1. Shu-Shiuan Lu, 2012. "East Asian growth experience revisited from the perspective of a neoclassical model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 359-376, July.
  2. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers, Stanford Institute for Economic Policy Research 07-006, Stanford Institute for Economic Policy Research.
  3. Suparna Chakraborty & Keisuke Otsu, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," Studies in Economics, Department of Economics, University of Kent 1212, Department of Economics, University of Kent.
  4. Mukherji, Arnab & Mukherji, Anjan, 2012. "Bihar: What Went Wrong? And What Changed?," Working Papers, National Institute of Public Finance and Policy 12/107, National Institute of Public Finance and Policy.
  5. Utsav Kumar & Arvind Subramanian, 2011. "India's Growth in the 2000s: Four Facts," Working Paper Series, Peterson Institute for International Economics WP11-17, Peterson Institute for International Economics.
  6. Gupta, Abhay, 2007. "Indian Economy - TFP or Factor Accumulation: A Comprehensive Growth Accounting Exercise," MPRA Paper 10316, University Library of Munich, Germany.

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