Does Distance Matter in Convergence among Indian States?

Abstract

In this paper we investigate the existence of convergence among Indian states over a period of thirty five years (1981-2016) by employing distance of any state from the leader (in terms of per-capita income) as our variable of interest. The study primarily focuses on the role of three major sectors, namely, agriculture, manufacturing and infrastructure, while examining the existence of convergence or lack of it. Prima facie, we do not find evidence of convergence among Indian states. However, our unit root tests results both at state and in panel data confirms existence of convergence. In the next step we take into account the three aforementioned sectors, our findings become even stronger. Our empirical results indicate that an increase in the relative income gap with the leader is associated with a decrease in the distance variable. This is consistent with the notion of convergence. Agriculture, manufacturing, and infrastructure variables all demonstrate statistically significant relationships with distance.