Macro-economic factors such as Literacy Rate, Population, Poverty Rate, Unemployment Rate, Capital Invested, Length of State Highways, etc impact any country’s GDP (Gross Domestic Product). When I was going through portal variables such as Literacy Rate and State GDP caught my eye. As on 2019, India has 28 states and 8 union territories.

Research Question: For example, Literacy rate in Maharashtra (82.3%) is less than Literacy rate in Kerala (94%). However, Maharashtra has $450 billion GDP and Kerala has hardly $130 billion GDP. This raised a question to me, is literacy rate not contributing to State GDP? Really what is effect of education/literacy rate? Similarly, other variables such as Alcohol Consumption rate and Tobacco Consumption rate are much lower in Maharashtra (GDP: $450 billion) and Gujarat (GDP: $260 billion). That raised another question to me, if alcohol consumption and tobacco consumption levels are lower, then that state has better GDP? Are higher levels of Alcohol consumption rate and tobacco consumption rate negatively effect state GDP? These further raised me a macro level question, really What are the top-5 factors contributing to a state GDP?

Conceptual Model: The research considered a conceptual model comprising 17 independent variables and 1 dependent variable (Indian State GDP). The 17 independent variables/factors considered to examine the relationship/effect with/on State GDP include State Population, Literacy Rate, Unemployment Rate, Length of State Highways, Per Capita Availability of Power in State, Invested Capital in State, Ease of Doing Business Score of State, Agricultural Investments, Health Scheme/Insurance Coverage, Alcohol Consumers Percentage, Tobacco Use Percentage, Poverty Rate, Having Drinking Water Source, Having Sanitation Facilities, Life Expectancy, Household Size, and Human Development Index (HDI) in state.

Research Findings: Data (36 rows (28 states+8 union territories) and 18 columns) (each state has one row of data with 18 data points/values) is collected from, RBI website, NITI Aayog, and Correlation and regression techniques are used to find the relationship and impact of independent variables on State GDP. The research finds the top-5 factors contributing to Indian State GDP as State Population, Length of State Highways, Invested Capital in State, Ease of Doing Business Score, and Agricultural Investments in State are strongly correlated to Indian State GDP.

Top-5 Factors Contributing to Indian States GDP: The top-5 factors in decreasing order of importance contributing to States GDP (based on strength of correlation coefficient values) are:




Factor Contributing to State GDP

Factor Relationship with Indian State GDP

(Correlation Coefficient Value)

1. Length of State Highways 0.890968
2. Agricultural Investments in State 0.840234
3. State Population 0.786566
4. Invested Capital in State 0.780706
5. Ease of Doing Business Score 0.665939

From the above, it is evident that the infrastructure a state has and the core economic sector agriculture the state has are the top two factors contributing to the respective state’s GDP. They are strongly correlated to State GDP.

Other Interesting Findings: Other interesting findings of research include, the higher the level of literacy rate, the lower is the poverty rate (Example: Kerala state has Poverty Rate of hardly 7.05%; and Literacy Rate of 94%). Alcohol consumption and tobacco use percentage are low to average positively correlated to poverty; and they are positively correlated to availing at least one government health benefit. Further literacy rate is positively correlated to Human Development Index. Ease of doing business is moderately positively correlated to Length of State Highways, and Capital Invested in state. The better the ease of doing business, the better the investments flow into the state, the research finds empirically. Also, the agricultural investments are strongly positively correlated to Indian State’s GDP.

To Explore/Read More: Sudhakar, G.P. (2020), “Top-5 Factors Contributing to Indian States GDP”, Amazon Publishing, ASIN: B08CSR8JQ1.

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Hope this helps…………New Year Greetings to Everyone………

Best Regards,

Dr. Goparaju Purna Sudhakar


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