Do Growth Accelerations Help Economies Escape From Low‐Growth Traps? Evidence From Indian States

Developing economies are frequently caught in low‐growth traps. This paper attempts to test whether a significant growth up‐break, known popularly in the literature as growth accelerations, can enable them to break out of such traps. A three‐step process is adopted to test this hypothesis. The first step involves identifying economies caught in low‐growth traps using the convergence club framework. The second step identifies all growth transitions, that is, growth accelerations and slowdowns, exhibited by these economies. The third step investigates whether having a growth acceleration is positively correlated with converging to a higher‐performing growth club, controlling for initial conditions and growth slowdowns. Using this three‐step process and using data from subnational regions of India, we next test our hypothesis. Our results show that growth accelerations have indeed played a significant role in club formation in India, enabling subnational regions with such accelerations to break into higher‐growth convergence clubs. Finally, drawing on the growth transition literature, our analysis suggests policy strategies for low‐growth economies that can help them to ignite growth accelerations and escape to higher‐performing clubs.