India, the world's largest democracy, is a country of contrasts. Not the least among these is the tremendous economic diversity of India's states. The Law and Economy in India program aims to analyze and explain why growth patterns are so different across India. The program analyzes the major differentials in growth across Indian states and sectors as a means of assessing potential interrelationships between the quality of legal institutions and economic development.
Three data points illustrate the depth of diverging growth patterns in India. First, between 1970 and 2004, the fastest growing states - Andra Pradesh, West Bengal, Karnataka, Gujarat and Maharastra - grew over twice as fast as the slow growing states. The pace of that divergence has been especially dramatic over the last fifteen years. Second, the five richest states receive a disproportionate share of capital, about 55% of total stock, while the five poorest states receive only 15%. Finally, half of the total FDI approvals go to the five most prosperous states. Third, on average, richer states are 50% more effective at reducing poverty than poorer states for each percentage point in growth.
But growth in India is not only geographically concentrated, it is also sectorally concentrated in high skill and service related industries. Since India's growth is so varied across particular sectors and particular states, the variation itself may serve as a natural experiment to examine whether this patchwork pattern of high and low growth can be explained, at least in part, by corresponding changes in the performance of legal institutions.
The project probes key economic sectors investigating connections between the quality of legal performance and economic growth or stasisin India: intellectual property, law enforcement and stock market development, labor, commercial arbitration, land rights, land use and competitiveness, the influence of law and legal institutions on firm-level management, the shifting nature of government-business relations, and infrastructure development.