Physical Capital Formation And Income Relationships: A Temporal Analysis For Punjab And Haryana

The present paper aims at examining comparative growth performance, structural transformations and causal relationships among Physical Capital Formation and Gross State Domestic Product in Punjab and Haryana states. Various analytical estimations have been made from secondary time series data for 30 years (from 1980-81 through 2009-10), compiled on aggregated/ disaggregated gross capital formation and domestic product in respect of the two states. As per the findings, aggregated capital formation has undergone deceleration (particularly during pre-liberalisation period) in Punjab, while acceleration in Haryana state, primarily due to the corresponding pattern in the assets like Plant & Machinery and Transport Equipment. Further, VECM-based causality analysis has indicated that income generation from Secondary sector was a pre-requisite for consolidation of transport infrastructure in both the states. However, the absence of causal linkage between physical capital formation and GSDP at the aggregated level in both the states suggests that something else (other than fixed investment), like human capital formation, productivity, economic and political environment, foreign investment etc., might be explaining economic growth in these states. Therefore, suitable policy measures may be required for raising productivity and diversifying economic base so as to achieve sustainable growth in the two states.