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Structural Change and Economic Growth: Patterns and Heterogeneity among Indian States and Implications for a Post-COVID Recovery

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  • Sanyal, Anirban
  • Singh, Nirvikar

Abstract

This paper empirically examines the relationship between economic growth and structural change in India over recent decades. It first estimates panel regressions with state-level data to examine the impact of structural change on growth and vice versa. Bidirectional causality is found, which holds across different specifications and estimation methods: each variable positively impacts the other in a positive feedback loop. The second part of the analysis relaxes assumptions of constant impacts across states and over time, estimating time-varying autoregressive models for each state and each pair of variables. The impacts of structural change and growth on each other seem to vary across different states, as well as over time, and are differentially affected by state per capita income levels and national growth rates. Similar variability across states and over time is found in an alternative method: labor productivity decompositions using employment data. Some possible reasons for these differences are discussed. The analysis suggests that national economic policy formulation may benefit from closer consideration of the structural differences across states, and the resulting differences in growth responses. The paper concludes with some possible implications for India’s post-pandemic recovery.

Suggested Citation

  • Sanyal, Anirban & Singh, Nirvikar, 2021. "Structural Change and Economic Growth: Patterns and Heterogeneity among Indian States and Implications for a Post-COVID Recovery," India Policy Forum, National Council of Applied Economic Research, vol. 17(1), pages 143-198.
  • Handle: RePEc:nca:ncaerj:v:17:y:2021:i:2021-1:p:143-198
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    More about this item

    Keywords

    India; Economic Growth; Structural Change; Panel Regression; Time Varying Parameters;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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