Cities as the Engine of Growth: Evidence from India

Abstract

This paper estimates their contributions to total gross state domestic product in an attempt to revisit the issue of cities as the engine of growth. Because direct evidence on this aspect is missing, this paper uses the proportion of urban workers to total workers and adjusts for the productivity differentials between rural and urban areas to arrive at the estimate of urban (city) domestic product. Findings suggest that a significant percentage of the value added, particularly in the nonagricultural sector, originates from the urban areas, with considerable variations across states. In general, states with a higher share of urban state domestic product have witnessed higher growth in per capita income and lower incidence of poverty. Estimates of cities’ contribution to the total urban domestic product have also been calculated for those that have been listed under special urban renewal mission. Rapid urbanization, economic growth, and poverty reduction are all related, and agglomeration economies play a major role in this context. Finally, this paper focuses on policy issues.