Regional Divergence in India during the Era of Liberalization: A Sectoral Decomposition

The objective of this paper is to understand and measure the contribution of various sectors towards the divergence of regional output in India in the era of liberalization. We have first described a framework that enables us to decompose the rate of divergence into the contribution made by various sectors. Next, we have used this framework to focus on the role of the agricultural, industrial and the services sectors of the Indian economy in bringing about changes in the level of regional inequality in the period following the liberalization of the economy. The results show that while the services and industrial sectors are largely responsible for the divergence during this period, the agricultural sector was offsetting some of the divergence.