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Convergence dynamics of output: Do stochastic shocks and social polarization matter?

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  • Mamata Parhi

    (Department of Economics, Swansea University, Swansea, UK.)

  • Claude Diebolt

    (BETA, UMR 7522, Université de Strasbourg & Humboldt-Universität zu Berlin.)

  • Tapas Mishra

    (Department of Economics, Swansea University, Swansea, UK.)

  • Prashant Gupta

    (Department of Economics, Swansea University, Swansea, UK.)

Abstract

This paper seeks to address two neglected aspects of convergence dynamics of cross-country per capita income. First, we allow evolutionary path of per capita income to contain stochastic shocks which may not converge fast enough to the long-run mean. Under this condition, we show that the conventional inference on σ convergence can be enlarged with more predictive power if one assumes, along with the necessary condition of β convergence, that the stochastic shocks are covariance stationary. Second, we argue that for economies to (conditionally) converge, they need to be sufficiently cohesive so that the growth of stochastic shocks is not sustained through complex socio-economic interactions. Empirical examination is carried out by analyzing time series properties of state per capita income in India and performing convergence analysis by conditioning a constructed social cohesion index based on indicators collected from the National Sample Survey. It is demonstrated that when the economy faces monotonic social segmentation, persistence of stochastic shocks considerably affects speed of per capita output convergence.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Association Française de Cliométrie (AFC) in its series Working Papers with number 12-10.

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Length: 19 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:afc:wpaper:12-10

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  1. Sanghamitra Bandyopadhyay, 2011. "Rich States, Poor States: Convergence And Polarisation In India," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(3), pages 414-436, 07.
  2. Katsumi Shimotsu, 2006. "Exact Local Whittle Estimation of Fractional Integration with Unknown Mean and Time Trend," Working Papers 1061, Queen's University, Department of Economics.
  3. Mototsugu Shintani, 2003. "A Nonparametric Measure of Convergence Toward Purchasing Power Parity," Levine's Working Paper Archive 506439000000000172, David K. Levine.
  4. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  5. Andrew T. Young & Matthew J. Higgins & Daniel Levy, 2008. "Sigma Convergence versus Beta Convergence: Evidence from U.S. County-Level Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1083-1093, 08.
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