Do Public and Private Project Infrastructure Expenditure in States Contribute to the Economic Growth of Nation? Evidences from India

Abstract

The purpose of the article is to find the effect of public expenditure (GI) and private project expenditure (PI) in different states on state gross domestic product (SGDP) and national gross domestic product (NDGP). The study also attempts to examine the sectors that contribute the most in growth of state and nation. The selected sectors in the study include manufacturing, mining, services, power, construction and infrastructure and irrigation. Data of all states and four union territories (UTs) for GI and PI in selected sectors are collected and a panel is formed. Four different regression equations are developed. The estimation is done using two-step Arellano–Bover/Blundell–Bond’s dynamic panel data to account for endogeneity and heteroscedasticity. The results suggest there exist two clusters of states in India. First cluster is of 13 states, which contributes towards the economic growth of nation and the other cluster is 16 states and UTs that do not contribute towards the economic growth of nation. The states that contribute towards the economic growth of nation do it primarily through private investment in the service sector.

Keywords

Economic growth state nation gross domestic product public project expenditure private project expenditure

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