Inequality of Opportunity and Economic Performance: Empirical Evidence from Indian States

Abstract

This study tests the effects of inequality of opportunity on the economic performance of Indian states. This is first such attempt using Indian data, and the case is relevant because Indian society is divided into different castes and religious groups. Using two rounds of employment survey data conducted from the National Sample Survey (NSS), a state-level analysis is performed. The paper employs the recently-developed method proposed by Ferreira and Gignoux (2011), and computes a state-level analysis of inequality of opportunity in income due to caste, religion and gender. Results suggest that there is wide heterogeneity among Indian states in inequality of opportunity. Models overcoming the endogeneity problem in the estimation confirm the effects of inequality of opportunity on economic performance. Specifically, the results of the analysis suggest that the impact is negative and moderate on per capita income. These findings validate the theoretical argument that a greater equity of opportunities leads to enhanced productivity and efficiency. Conversely, a high level of inequality of opportunity in the job market is likely to hurt economic performance.