Inequality and Locational Determinants of the Distribution of Living Standards in India

Using 2011-12 consumption micro-data, we find that nearly one-third of the variation in living standards in India can be explained by location alone. Consumption levels and locational inequality are positively related. In effect, from an individual's perspective, living standards are higher in richer, but more unequal, locations in India. The central factor is the large differences in average consumption levels between rural and urban India (the latter is more unequal), and continued divergence in per-capita incomes between rich and poor states. Our results have implications for the persistence of economic migration within a fast-growing emerging economy. Individuals can choose to change their location to enjoy better living standards, but not necessarily trade other specific characteristics like caste, religion and gender