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

  • 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.)

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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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. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  2. Katsumi Shimotsu, 2002. "Exact Local Whittle Estimation of Fractional Integration with Unknown Mean and Time Trend," Economics Discussion Papers 543, University of Essex, Department of Economics.
  3. Sanghamitra Bandyopadhyay, 2006. "Rich States, Poor States: Convergence and Polarisation in India," Economics Series Working Papers 266, University of Oxford, Department of Economics.
  4. Andrew Young & Matthew Higgins & Daniel Levy, 2005. "Sigma-Convergence Versus Beta-Convergence: Evidence from U.S. County-Level Data," Macroeconomics 0505008, EconWPA.
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