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Abstract

This paper aims to quantify the driving forces behind the observed divergence of Indian economy. The results show that in a closed economy with agriculture as the predominant mode of production, the comparative advantage is mainly determined by the difference in land quality and climate across regions within a country. However, when the economy opens its door to the rest of the world, a region's comparative advantage is evaluated in a broader global context. Therefore, regions adjacent to more developed economies, or with better infrastructure such as ports and airports, enjoy a far better location advantage for trade and development than landlocked regions. More investment in physical infrastructure such as roads will bring the interior regions closer to the world markets and reduce regional disparity. Among all the factors considered, education is the only equalizing factor to regional development.

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