Abstract
In the 1990s, India undertook large scale market-based reforms. This was expected to bring about convergence in growth rates across different states. However, the bulk of empirical literature on India suggests that there has been increased divergence in the post reforms period. We re-examine the convergence debate of India’s economic growth and question the validity of existing estimates of convergence rates, most of which are based on either cross-section analysis or non-spatial panel data analysis. We provide the first estimates of convergence rates in India from spatial panel data models. Our analysis reveals a significant influence of neighbouring states’ growth on per capita income of Indian states. The impact of initial income on growth is much smaller than earlier anticipated once we control for spatial dependence. This suggests that many of the earlier estimates of convergence rates and the impact of initial income on growth may be inaccurate and biased. Our results confirm that the “β” convergence coefficient is positive and significant suggesting income divergence. In addition, we find evidence of spatial dependence among the states in India. Apart from the state’s own initial income, what matters is how rich or poor its neighbours are. This occurs even though the neighbours may have different growth drivers and lack a set of common public policies. This has implications for growth policy-making in India, especially due to the ongoing institutional changes underway in the country.
Similar content being viewed by others
References
Ades, A., & Chua, H. B. (1997). Thy neighbor’s curse: Regional instability and economic growth. Journal of Economic Growth, 2(3), 279–304.
Ahluwalia, M. (2000). Economic performance of states in post-reforms period. Economic and Political Weekly, 35(19), 1637–1648.
Anderson, J. E. (2011). The gravity model. Annual Review of Economics, 3(1), 133–160. https://doi.org/10.1146/annurev-economics-111809-125114.
Anselin, L. (1988). Spatial econometrics: Methods and models. Dordrecht: Kluwer.
Anselin, L. (1996). The Moran scatterplot as an ESDA tool to assess local instability in spatial association. In M. Fischer, H. J. Scholten, & D. Unwin (Eds.), Spatial analytical perspectives on GIS (pp. 111–125). London: Taylor & Francis.
Anselin, L., & Florax, R. J. G. M. (1995). New directions in spatial econometrics. Berlin: Springer.
Arbia, G., Basile, R., & Piras, G. (2005). Using spatial panel data in modelling regional growth and convergence. Institute for Studies and Economic Analyses (ISAE), WP 55, 1–31. http://lipari.istat.it/digibib/Working_Papers/WP_55_2005_Arbia_Piras_Basile.pdf. Accessed 15 Sep 2016.
Arbia, G., & Paelinck, J. H. P. (2003). Spatial econometric modeling of regional convergence in continuous time. International Regional Science Review, 26(3), 342–362. https://doi.org/10.1177/0160017603255974.
Bajpai, N., & Sachs, J. D. (1996). Trends in interstate inequalities of income in India. Harvard Institute for International Development (Development Discussion Paper No. 528). Retrieved from http://hdl.handle.net/10022/AC:P:8190. Accessed 18 Dec 2016.
Bandyopadhyay, S. (2011). Rich states, poor states: Convergence and polarisation in India. Scottish Journal of Political Economy, 58(3), 414–436. https://doi.org/10.1111/j.1467-9485.2011.00553.x.
Bandyopadhyay, S. (2012). Convergence clubs in incomes across Indian states: Is there evidence of a neighbours’ effect? Economics Letters, 116(3), 565–570. https://doi.org/10.1016/j.econlet.2012.05.050.
Barro, R. J. (1991). Economic growth in a cross section of countries. The Quarterly Journal of Economics, 106(425), 407–443.
Barro, R. J., & Sala-i-Martin, X. (1992). Convergence. The Journal of Political Economy, 100(2), 223–251.
Barro, R. J., Sala-i-Martin, X., Blanchard, O. J., & Hall, R. E. (1991). Convergence across states and regions. Brookings Papers on Economic Activity: The Brookings Institution, 1991(1), 107–182.
Basu, K., & Maertens, A. (2007). The pattern and causes of economic growth in India. Oxford Review of Economic Policy, 23(2), 143–167. https://doi.org/10.1093/icb/grm012.
Baumol, W. J. (1986). Productivity growth, convergence, and welfare: What the long-run data show. The American Economic Review, 76(5), 1072–1085.
Baumont, C., Ertur, C., & Gallo, J. L. (2006). The European regional convergence process, 1980–1995: Do spatial regimes and spatial dependence matter? International Regional Science Review, 29(1), 3–34.
Borts, G. H., & Stein, J. L. (1962). Regional growth and maturity in the United States: A study of regional structural change. In L. Needleman (Ed.), Regional analysis (1968) (pp. 159–197). Baltimore: Penguin Books.
Bourguignon, F., & Morrisson, C. (2002). Inequality among World citizens: 1820–1992. The American Economic Review, 92(4), 727–744.
Cashin, P., & Sahay, R. (1996). Regional economic growth and convergence in India. Finance & Development, 33(1), 49–52.
Chatterjee, T. (2017). Spatial convergence and growth in Indian agriculture: 1967–2010. Journal of Quantitative Economics, 15(1), 121–149. https://doi.org/10.1007/s40953-016-0046-3.
Cherodian, R., & Thirlwall, A. P. (2015). Regional disparities in per capita income in India: Convergence or divergence? Journal of Post Keynesian Economics, 37(3), 384–407. https://doi.org/10.1080/01603477.2015.1000109.
Cheshire, P. C., & Malecki, E. J. (2004). Growth, development and innovation. In R. J. G. M. Florax & D. A. Plane (Eds.), Fifty years of regional science (pp. 249–268). Berlin: Springer.
Dasgupta, D., Maiti, P., Mukherjee, R., Sarkar, S., & Chakrabarti, S. (2000). Growth and interstate disparities in India. Economic and Political Weekly, 35(27), 2413–2422.
Desmet, K., Ghani, E., O’Connell, S., & Rossi-Hansberg, E. (2015). The spatial development of India: Spatial development of India. Journal of Regional Science, 55(1), 10–30. https://doi.org/10.1111/jors.12100.
Dholakia, R. H. (1994). Spatial dimensions of accelerations of economic growth in India. Economic and Political Weekly, 29(35), 2303–2309.
Dornbusch, R., Fischer, S., & Richard, Startz. (2002). Macroeconomics (8th ed.). New Delhi: Tata McGraw-Hill Publishing Company Limited.
Drukker, D. M., Peng, H., Prucha, I. R., & Raciborski, R. (2013). Creating and managing spatial-weighting matrices with the spmat command. The Stata Journal, 13(2), 242–286.
Elhorst, J. P. (2014). Spatial econometrics from cross-sectional data to spatial panels. New York: Springer.
Elias, M., & Rey, S. J. (2011). Educational performance and spatial convergence in Peru. Région et Développement, 33, 107–135.
Ertur, C., Gallo, J. L., & LeSage, J. P. (2007). Local versus global convergence in Europe: A Bayesian spatial econometric approach. The Review of Regional Studies, 37(1), 82–108.
Evans, P., & Karras, G. (1996). Convergence revisited. Journal of Monetary Economics, 37(2), 249–265. https://doi.org/10.1016/S0304-3932(96)90036-7.
Fischer, M. M., & Stumpner, P. (2008). Income distribution dynamics and cross-region convergence in Europe: Spatial filtering and novel stochastic kernel representations. Journal of Geographical Systems, 10(2), 109–139. https://doi.org/10.1007/s10109-008-0060-x.
Fujita, M., Krugman, P., & Venables, A. J. (1999). The spatial economy: Cities, regions, and international trade. Cambridge: MIT Press.
Getis, A. (2008). A history of the concept of spatial autocorrelation: A geographer’s perspective. Geographical Analysis, 40(3), 297–309. https://doi.org/10.1111/j.1538-4632.2008.00727.x.
Ghate, C. (2008). Understanding divergence in India: A political economy approach. Journal of Economic Policy Reform, 11(1), 1–9. https://doi.org/10.1080/17487870802031411.
Ghosh, B., Marjit, S., & Neogi, C. (1998). Economic growth and regional divergence in India, 1960 to 1995. Economic and Political Weekly, 33(26), 1623–1630.
GoG (Government of Goa). (2017). Economic survey 2016–17. Directorate of Planning and Statistics, Government of Goa, Porvorim. http://goadpse.gov.in/Economic%20Survey%202016-17.pdf.
GoK (Government of Kerala). (2017). Economic Review 2016 Government of Kerala; Volume One. State Planning Board, Thiruvananthapuram, Kerala. Retrieved from https://kerala.gov.in/documents/10180/ad430667-ade5-4c62-8cb8-a89d27d396f1.
GoKar (Government of Karnataka). (2016). Economic Survey of Karnataka—2015–16. Department of Planning, Programme Monitoring & Statistics Government of Karnataka, Bengaluru. Retrieved from http://des.kar.nic.in/docs/Economic%20Survey%202015-16_English%20Final.pdf.
Islam, N. (1995). Growth empirics: A panel data approach. Quarterly Journal of Economics, 110(4), 1127–1170.
Kalra, R., & Thakur, S. (2015). Development patterns in India: Spatial convergence or divergence? GeoJournal, 80(1), 15–31. https://doi.org/10.1007/s10708-014-9527-0.
Kanbur, R., & Zhang, X. (2005). Fifty years of regional inequality in China: A journey through central planning, reform, and openness. Review of Development Economics, 9(1), 87–106.
Kar, S., Jha, D., & Kateja, A. (2011). Club-convergence and polarization of states: A nonparametric analysis of post-reform India. Indian Growth and Development Review, 4(1), 53–72. https://doi.org/10.1108/17538251111125007.
Karnik, A., & Lalvani, M. (2012). Growth performance of Indian states. Empirical Economics, 42(1), 235–259. https://doi.org/10.1007/s00181-010-0433-0.
Khomiakova, T. (2008). Spatial analysis of regional divergence in India: Income and economic structure perspectives. The International Journal of Economic Policy Studies, 3(7), 1–25.
Kocornik-Mina, A. (2009). Spatial econometrics of multiregional growth: The case of India. Papers in Regional Science, 88(2), 279–300. https://doi.org/10.1111/j.1435-5957.2009.00244.x.
Kotwal, A., Ramaswami, B., & Wadhwa, W. (2011). Economic liberalization and Indian economic growth: What’s the evidence? Journal of Economic Literature, 49(4), 1152–1199. https://doi.org/10.1257/jel.49.4.1152.
Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy, 99(3), 483–499. https://doi.org/10.1086/261763.
Kurian, N. J. (2000). Widening regional disparities in India: Some indicators. Economic and Political Weekly, 35(7), 538–550.
LeSage, J., & Pace, R. K. (2009). Introduction to spatial econometrics. Sound Parkway, NW: Chapman & Hall/CRC, Taylor & Francis Group.
Lolayekar, A., & Mukhopadhyay, P. (2017). Growth convergence and regional inequality in India (1981–2012). Journal of Quantitative Economics, 15(2), 307–328. https://doi.org/10.1007/s40953-016-0051-6.
Maddison, A. (1983). A comparison of levels of GDP per capita in developed and developing countries, 1700–1980. Journal of Economic History, 43(01), 27–41. https://doi.org/10.1017/S0022050700028965.
Magalhães, A., Hewings, G., & Azzoni, C. (2005). Spatial dependence and regional convergence in Brazil. Investigaciones Regionales, 6, 5–20.
Mitra, S., & Marjit, S. (1996). Convergence in regional growth rates—Indian research Agenda. Economic and Political Weekly, 31(33), 2239–2242.
Moreno, R., & Trehan, B. (1997). Location and the growth of nations. Journal of Economic Growth, 2(4), 399–418.
MPD (Maharashtra Planning Department). (2017). Vision 2030. Planning Department, Government of Maharashtra. Retrieved from https://plan.maharashtra.gov.in/Sitemap/plan/pdf/final_Vision_Eng_Oct2017.pdf.
Panagariya, A., Australia, & Department of Foreign Affairs and Trade. (2013). Indian economy: Retrospect and prospect. Richard Snape Lecture. Melbourne. Productivity Commission: Canberra. Retrieved from http://www.pc.gov.au/__data/assets/pdf_file/0004/128956/snape-2013-panagariya.pdf.
Patacchini, E., & Rice, P. (2007). Geography and economic performance: Exploratory spatial data analysis for Great Britain. Regional Studies, 41(4), 489–508.
Pisati, M. (2001). Tools for spatial data analysis. Stata Technical Bulletin, 60, 21–37.
Quah, D. T. (1997). Empirics for growth and distribution: Stratification, polarization, and convergence Clubs. Journal of Economic Growth, 2(1), 27–59.
Rabassa, M. J., & Zoloa, J. I. (2016). Flooding risks and housing markets: A spatial hedonic analysis for La Plata City. Environment and Development Economics, 21(04), 464–489. https://doi.org/10.1017/S1355770X15000376.
Ramirez, M. T., & Loboguerrero, A. M. (2005). Spatial dependence and economic growth: Evidence from a panel of countries. In L. Finely (Ed.), Economic growth issues (pp. 23–51). New York: Nova Science.
Rao, M. G., & Singh, N. (2001). Federalism in India: Political economy and reform. Presented at the India: Ten Years of Economic Reform. UCSC Economics Working Paper No. 484. http://dx.doi.org/10.2139/ssrn.288352.
Rey, S. J., & Montouri, B. D. (1999). US regional income convergence: A spatial econometric perspective. Regional Studies, 33(2), 143–156. https://doi.org/10.1080/00343409950122945.
Rodrik, D., & Subramanian, A. (2005). From Hindu growth to productivity surge: The mystery of the Indian growth transition. IMF Staff Papers, 52(2), 193–228.
Sachs, J. D., Bajpai, N., & Ramiah, A. (2002). Understanding regional economic growth in India. Asian Economic Papers, 1(3), 32–62. https://doi.org/10.1162/153535102320893983.
Sala-i-Martin, X. X. (1996). The classical approach to convergence analysis. The Economic Journal, 106(437), 1019–1036. https://doi.org/10.2307/2235375.
Sanga, P., & Shaban, A. (2017). Regional divergence and regional inequalities in India. Economic & Political Weekly, 52(1), 102–110.
Schreiber, S. (2008). The Hausman test statistic can be negative even asymptotically. Journal of Economics and Statistics (Jahrbuecher Fuer Nationaloekonomie Und Statistik), 228(4), 394–405.
Sofi, A. A., & Durai, S. R. S. (2015). Club convergence across Indian states: An empirical analysis. Journal of Economic Development, 40(4), 107–124.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513.
Venables, A. J. (2010). New economic geography. In S. N. Durlauf & L. E. Blume (Eds.), Economic growth (pp. 207–214). London: Palgrave Macmillan. https://doi.org/10.1057/9780230280823_26.
Acknowledgements
The authors are grateful to Costas Azariadis, Sourav Bhattacharya, Saumya Chakrabarti, M.S. Dayanand, Arpita Ghose, Alok Johri, Debdulal Mallick, Anirban Mukherjee, Bibhas Saha and P.K. Sudarsan for their comments and advice at various stages of this paper. We acknowledge helpful discussion with participants at the 12th Annual Conference on Economic Growth and Development, Indian Statistical Institute, New Delhi (December 2016), the International Research Scholars’ Workshop, University of Calcutta (July 2016) and the 52nd Annual Conference of the Indian Econometric Society at the Indian Institute of Management, Kozhikode (January 2016). We acknowledge assistance from Tessy Thomas with generating the GIS maps and Anjali Sen Gupta for editing. Comments from the Editor and an anonymous reviewer of this journal have helped in improving the paper significantly. The usual disclaimer applies.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The authors declare that there is no conflict of interest.
Electronic supplementary material
Below is the link to the electronic supplementary material.
Rights and permissions
About this article
Cite this article
Lolayekar, A.P., Mukhopadhyay, P. Spatial dependence and regional income convergence in India (1981–2010). GeoJournal 84, 851–864 (2019). https://doi.org/10.1007/s10708-018-9893-0
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10708-018-9893-0