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The persistence of inequality across Indian states

Listed author(s):
  • Sanghamitra Bandyopadhyay

The persistence of regional inequalities in developing countries is well recognised to be of great concern. In this paper I track stochastic convergence in relative incomes for Indian states between 1960-2011 with the intent to identify high persistence and mean reversal. Traditional unit root tests suggest that shocks to relative incomes across the Indian states are permanent thus contradicting the stochastic convergence hypothesis. Interval estimates of the largest autoregressive root for the relative incomes of 15 Indian states are very wide. However, confidence interval estimates of the half life of the relative income shocks, that are robust to high persistence and small samples, reveal that in most cases they die out within 10 years, suggesting mean reversion for a large number of states. Finally, I estimate a fractionally integrated model and obtain mixed evidence of mean reversion in the data, with six out of the fifteen states experiencing mean reversion. In sum, while the evidence obtained does not support the stochastic convergence hypothesis, our findings reveal that the relative incomes have a relatively short half life and that some states’ relative incomes are mean-reverting. This result is encouraging and in contrast to earlier studies which indicate long term divergence and polarisation (Bandyopadhyay 2011).

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File URL: http://webspace.qmul.ac.uk/pmartins/CGRWP74.pdf
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Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 74.

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Date of creation: Sep 2016
Handle: RePEc:cgs:wpaper:74
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  1. Kamakshya Trivedi, 2002. "Regional Convergence and Catch-up in India between 1960 and 1992," Economics Series Working Papers 2003-W01, University of Oxford, Department of Economics.
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  10. Nicola Gennaioli & Rafael La Porta & Florencio Lopez De Silanes & Andrei Shleifer, 2014. "Growth in regions," Journal of Economic Growth, Springer, vol. 19(3), pages 259-309, September.
    • Nicola Gennaioli & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, "undated". "Growth in Regions," Working Paper 73436, Harvard University OpenScholar.
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  11. Josep Carrion-i-Silvestre & Vicente German-Soto, 2009. "Panel data stochastic convergence analysis of the Mexican regions," Empirical Economics, Springer, vol. 37(2), pages 303-327, October.
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  13. Bandyopadhyay, Sanghamitra, 2001. "Twin Peaks: Convergence Empirics of Economic Growth across Indian States," WIDER Working Paper Series 142, World Institute for Development Economic Research (UNU-WIDER).
  14. Michelacci, Claudio & Zaffaroni, Paolo, 2000. "(Fractional) beta convergence," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 129-153, February.
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  18. repec:cup:apsrev:v:105:y:2011:i:03:p:478-495_00 is not listed on IDEAS
  19. 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, July.
  20. Roland Hodler & Paul A. Raschky, 2014. "Regional Favoritism," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 995-1033.
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