Chapter 8 Convergence Club Empirics: Evidence from Indian States

The distribution dynamics of incomes across Indian states are examined using the entire income distribution. Unlike standard regression approaches, this approach allows us to identify specific distributional characteristics such as polarisation and stratification. The period between 1965 and 1997 exhibits the formation of two convergence clubs: one at 50% and another at 125% of the national average income. Income disparities across the states declined over the sixties and then increased from the seventies to the nineties. Conditioning exercises reveal that the formation of the convergence clubs is associated with the disparate distribution of macro-economic factors such as capital expenditure and fiscal deficits. In particular, capital expenditure, fiscal deficits and education expenditures are found to be associated with the formation of the upper convergence club.