Stagnation and revival of Kerala economy : an open economy perspective

One debilitating feature of the existing literature on the development dynamics of Kerala economy is the undue emphasis on endogenous factors. The making of the ‘Kerala model’ as well as its crisis are sought to be understood in a closed economy framework. While the emphasis on endogenous factors, particularly on the redistributive policies, is eminently justifiable, what is conspicuously missing in the literature is an effort to unravel the mystery of the general backwardness of the goods producing sectors. This is particularly true of the studies on the crisis of the regional economy since the mid seventies. Given the closed economy perspective, neither the migration nor the remittance has figured in the analytics of development of the region. The mainstream approach has been one of treating the boom in remittance as a boon, with no bearing on the crisis except that it helped moderate the adverse impact of the same. Given the extreme dependence of the regional economy on rest of the world, the present study approaches the problem in an open economy perspective and bring the question of migration and remittance to its rightful place within the structure of the regional economy. Drawing insights from the Dutch disease economics, the present paper argues that the crisis of the commodity producing sectors witnessed during the period since mid seventies could be attributed to the resource movement and spending effect associated with remittance boom. The study also highlights a revival in the growth of the regional economy since the mid eighties and makes an attempt to account for the same in terms of different factors including the adaptation of the regional economy to the Dutch disease environment. JEL Classification: F22, O18, O19.