As a country progressively engages in international trade, its factors of production increasingly enter into the export sector, where their return is higher compared to the import-competing sector. At the regional level too, those states which can attune their production structure to international demands earn more from trade than other states, and also grow at a faster rate. A regional openness index has been reconstructed by combining the export and import intensities of the states, ranks of correlation of state production shares, respectively, with tradable production share as suitable weights at the state level. The index is highly influenced by the institutional variation across states in a federal setting. The per capita net state domestic products have been growing in all major states in India during the period 1980–2009, but at different rates, and one of the detrimental factors for this has been regional openness.
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