Income convergence in India: evidence from nonparametric panel data

Abstract

Purpose The purpose of this paper is to investigate convergence hypothesis in a balanced panel of 22 Indian states for the time period of 1980-81 to 2010-11 by applying nonparametric model setting in a panel framework. Design/methodology/approach The present study uses nonparametric and semi-parametric panel data methods to test the absolute and conditional convergence, respectively, and examines the income convergence using nonparametric panel data methods with state specific effects taken into consideration. These models are being estimated by the iterative process for a balanced panel of state wise per capita income and other conditioning variables for the time period of 1980-81 to 2010-11. For removing the fixed effects, the authors follow within transformation procedure according to the feasibility of the problem. Since convergence is estimated by regressing dependent variable on initial level of independent variable (as growth rate of income and per capita income in this case). So using usual transformation for removing the fixed effects is not feasible because by doing so the authors may end up with singular matrices on both sides of the regression model. Findings The results reject the null of parametric specification for both absolute as well as conditional convergence model. As to the outcome of the empirical analysis, the findings reveal that the Indian states are diverging in absolute sense and converging on conditional basis. Convergence happens to be consistent and conditional upon public expenditure, power generation share of primary and tertiary sector to Gross State Domestic Product. Originality/value The originality of the study is in its application of advanced methodology to highlight the model misspecifications while testing the convergence hypothesis in earlier literature.

Spatial growth and convergence in Indian agriculture

“…This study attempts to address some of the above noted issues in the convergence literature focusing on the Indian case. Taking states as the unit of measurement, some studies identified a divergence in India's overall economic growth but others found a convergence (Ghosh et al., 2013; Nagaraj et al., 2000; Sachs et al., 2002; Sofi & S., 2017). Recent developments that probe such tendency at a district level also provide contrasting results (Chanda & Kabiraj, 2020; Das et al., 2015).…”

Regional and subregional analyses of macroeconomic policy strategies for growth and equality in Southern Africa

“…In fact, the literature on the convergence hypothesis of Barro and Sala-i-Martin (1992) explains the differences in levels and growth rates of income across different economies or regions in an economy (to cite a few among others, Purfield 2006;Rao et al 1999;Sachs et al 2002;Trivedi 2003). A few studies have found evidence of absolute divergence with conditional convergence (see among others, Chakraborty and Chakraborty 2018;Cherodian and Thirlwall 2015;and Sofi and Durai 2017).…”

Spatial spill-overs, structural transformation and economic growth in India

“…Regional patterns of growth, however, have been asymmetrical, leading to an accentuation in interregional disparities in economic development (Nagaraj et el. 2000;Sachs et al 2002;Bhattacharya and Sakthivel 2004;Purfield 2006; Sodwriwiboon and Kalra 2010; Agarwalla and Pangotra 2011; Sofi and Raja Sethu Durai 2017;OECD 2017). Reducing regional disparities is, therefore, a major policy concern, as the regions left behind in economic development could be more prone to social tensions and fissiparous tendencies (Shankar and Shah 2003;Sodwriwiboon and Kalra 2010).…”