Investigating the Relationship of Disparity in Income, Private investment and wage rate in Indian states: A Panel Cointegration Approach

In this paper, we use enterprise level data from the Annual Survey of Industries (ASI) to examine the inter-relationships between per capita income, wage rate and private investment of the registered manufacturing sector across the Indian states in the years of trade and investment liberalization. The study uses cointegration and fully modified OLS estimators for a panel of 20 major states spanning the period 1993-2007. There is evidence of two long-run bidirectional relationships of per capita income with wage rate and private investment and a short-run bidirectional relationship between the per capita income and per capita private investment. The wage rate does not cause the per capita income in the short-run, and it does not cause the private investment in both the short and long run.