Do Effective State Business Relations Matter for Economic Growth? Evidence from Indian States

Effective state-business relations are a set of highly institutionalised, responsive and public interactions between the state and the business sector. This paper examines the impact of effective state-business relations on economic growth across Indian states over the period 1985-2006. We propose a measure that captures the various dimensions of effective state-business relations (SBR) at the sub-national level, and estimate standard growth regressions using dynamic panel data methods with this measure, controlling for other determinants of sub-national level growth. Our results show that effective state-business relations contribute significantly to economic growth. This result is robust to the use of different specifications and methods for computing the SBR measure and appears to be driven by the intensity of the interactions between the state and the private sector as well as by the absence of harmful collusive behaviour between them