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Kerala and Tamil Nadu: differing pathways to development

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Abstract

Kerala and Tamil Nadu, neighbouring states in South India, have each in its own way attracted much attention from development economists in India and abroad. Kerala is known for its development record illustrated by the high levels of literacy of its citizens and health related development indictors. Kerala’s record of development has generated debate on the primacy of growth as opposed to investments in health and education as propagators of development. Kerala is supposed to have achieved development with little growth. The other striking feature of Kerala’s economy is the relatively low contribution of manufacturing to its growth and the preponderance of the services sector in both growth and employment. Tamil Nadu, in contrast to Kerala, possesses a manufacturing sector led by high tech automobiles and low tech textiles sectors amongst others. There is evidence to support the thesis that whilst Tamil Nadus’s growth path over the years conforms to the Kuznets inverted U curve paradigm, Kerala’s growth path is far from it. This paper argues that it would be erroneous to claim that Kerala development record is based on low levels and illustrates the returns to be had from emphasising investments in health and education. That which is important for development is a flow of investible resources. Kerala in the earlier years of its development relied on public borrowing for such resources and in recent years it has had heavy inflows of remittances from its diaspora in the Gulf states. Tamil Nadu’s record is largely based on growth and foreign direct investments in its manufacturing sector. This paper argues that the differing growth paths of the two states and their development record is to be traces to history and the institutions, especially the education and political institutions in place in the two states. Kerala possesses a comparative advantage in tourism and health services and should promote these sectors if it were to sustain its development record with a sustainable growth path that is not dependent on uncertain and fluctuating remittances from abroad. Tamil Nadu that has entered the services phase of the Kuznets cycle is likely to grow with services sustained manufactures.