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A tale of two states: Maharashtra and West Bengal

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  • Amartya Lahiri
  • Kei-Mu Yi

Abstract

In this paper the authors study the economic evolution between 1960 and 1995 of two states in India — Maharashtra and West Bengal. In 1960, West Bengal’s per capita income exceeded that of Maharashtra. By 1995, it had fallen to just 69 percent of Maharashtra’s per capita income. The authors employ a "wedge" methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the sources of the divergent economic performances. Their 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. These patterns, together with additional evidence on developments in the labor market, the manufacturing sector, and voting behavior, suggest a systematic worsening of the business environment in manufacturing in West Bengal during this period.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 06-16.

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Date of creation: 2006
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Handle: RePEc:fip:fedpwp:06-16

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Keywords: India;

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  1. Abhijit Banerjee & Kaivan Munshi, 2004. "How Efficiently is Capital Allocated? Evidence from the Knitted Garment Industry in Tirupur," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 71(1), pages 19-42.
  2. Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers, Center for Economic Studies, U.S. Census Bureau 09-04, Center for Economic Studies, U.S. Census Bureau.
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  7. Sanghamitra Bandyopadhyay, 2003. "Convergence Club Empirics: Some Dynamics and Explanations of Unequal Growth across Indian States," STICERD - Distributional Analysis Research Programme Papers, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 69, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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Cited by:
  1. Shu-Shiuan Lu, 2012. "Online Appendix to "East Asian Growth Experience Revisited from the Perspective of a Neoclassical Model"," Technical Appendices, Review of Economic Dynamics 09-1, Review of Economic Dynamics.
  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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