One Polity, Many Countries: Economic Growth in India, 1873-2000

One Polity, Many Countries: Economic Growth in India, 1873-2000 Gregory Clark, University of California, Davis Susan Wolcott, University of Mississippi We argue, based on Indian experience, that the major determinants of economic growth are not political and economic institutions. Through the laissez faire Colonial regime, and the interventionist economy of Independent India income per capita declined relative to advanced economies until the 1980s. And though economic growth has been impressive since 1986, the upturn pre-dates even the modest economic reforms of 1991. Further there is increasing regional variation in income per capita across states in India despite the dominance of national economic policies. Some states’ growth rates have declined since the reforms. Yet labor has moved little within India from the regions of persistent low incomes to those of high incomes. The experience of Europe and the USA suggests that encouraging migration of workers to high productivity areas within India is the only policy we know will improve overall income per capita. Introduction India is perhaps the most interesting of all economies for those interested in economic growth. For it is one of the poorer countries of the world, and has even seen an erosion of its income per capita relative to the economically advanced economies such as the USA since we have the first reasonable data in 1873. But this has occurred in an institutional environment that has been very favorable for most of this period. Indeed from an economist’s perspective the institutional environment in the Colonialist years from 1873-1947 – secure property rights, free trade, fixed exchange rates, and open capital markets - was close to ideal. So India captures the twentieth century paradox of a world of ever more rapid and easy movement of information and goods combined with large and often increasing disparities in living conditions. Figure 1 shows calculated GDP per capita in India from 1873 to 1998

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Data Sources used in Regression Analysis Variable State GDP per capita, 1991-2 and 1998-9 Annual Rate of population Growth, 19611991 and 1990-1997 Adult Literacy, 1991 % of 5 to 14 year olds enrolled in primary school % of 10 to 19 year olds enrolled in secondary school Taxes as a share of state GDP, 1990-98 Public Capital Expenditures per 100 workers, 1990-98a Education Expenditures per 100 workers, 1990-98a Phones, Km. Roads and Telephones per 100 workers, 1985 Urbanization, 1961 and 1991 Source www.statesforum.org Indian Central Statistical Office, Basic Statistics (1980). www.censusindia.net www.censusindia.net A Social and Economic Atlas of India (1987) A Social and Economic Atlas of India (1987) www.statesforum.org www.statesforum.org. A Social and Economic Atlas of India (1987) www.statesforum.org. A Social and Economic Atlas of India (1987) A Social and Economic Atlas of India (1987) Indian Central Statistical Office, Basic Statistics (1980). www.censusindia.net a Workers are defined as those 15 to 59 participating in the labor force.