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This paper examines the growth performance of Indian States during 1970±94. We, ®rst, assess the contribution of dierences in the availability of physical, social, and economic infrastructure to growth performance. Our estimations account for reverse causality arising from the endogeneity of infrastructure investment. Then, combining principal components analysis and panel data estimation techniques, we provide more accurate estimates of the growth impact of speci®c types of infrastructure. In particular, we highlight the strong impact of primary education, health conditions, irrigation, roads and rail network, power capacities, and ®nancial development. Moreover, we do ®nd evidence of conditional convergence across States. This does not rule out persistent income inequalities due to the dispersion of steady-state income levels. Such disparities are accounted for by dierences, ®rst, in the structure of production, second, in infrastructure endowments, and, third, in State-speci®c ®xed eects in the growth regression.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.