Regional disparities in per capita income in India: convergence or divergence?

Abstract

The paper looks at the latest evidence on what has been happening to regional disparities in per capita income (measured as gross state domestic product per capita) in India over the first decade of the twenty-first century (1999/2000 to 2010/2011) by estimating cross-section equations for unconditional and conditional beta (β) convergence and sigma (σ) convergence across thirty-two regions (twenty-eight states and four union territories). There is no evidence of unconditional convergence, but weak evidence of conditional convergence controlling for population growth, credit growth, male literacy, the share of agriculture in state GDP, and state expenditure as a share of state GDP. Sigma divergence has increased continuously, except among the poorest states.

Key words:

• regional growth
• India
• convergence/divergence

JEL classifications:

• O47
• O53
• R11

Notes

¹Measured by gross state domestic product (GSDP) divided by population.

²Cashin and Sahay (1996) find grants to State governments from central government have had a positive impact on reducing regional disparities, but have been offset by other factors.

³For a formalization of the Kaldor model and its dynamic properties, see Dixon and Thirlwall (1975) and Thirlwall (2013).

⁴For an overview of nonorthodox cumulative causation theory, including the theory of externalities, see Toner (1999).

⁵The new economic geography of Krugman (1991, 1995) also predicts divergence if centripetal forces outweigh centrifugal forces.

⁶For state data on all of the conditioning variables and data sources, see Appendixes 1 and 2, respectively.

⁷Three union territories are excluded due to lack of data. They are Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep, but they account for only 0.05 percent of India’s population.

Additional information

Notes on contributors

Rowan Cherodian

Rowan Cherodian is a former master’s student at the University of Sussex, UK.

A. P. Thirlwall

A.P. Thirlwall is a professor of Applied Economics at the University of Kent, UK.