This study has examined the convergence of growth and incomes with reference to the Indian states using an empirical model of dynamically evolving distributions. The model reveals 'twin peaks' dynamics, or polarization across the Indian states, over 1965-97—empirics which would not be revealed under standard methods of cross-sectional, panel data, and time series econometrics. The dominant cross-state income dynamics is found to be associated with persistence, immobility, and polarization, with some cohesive tendencies in the 1960s, which dissipate over the following three decades. These findings contrast starkly with those emphasized in works of Aiyar (2000), Bajpai and Sachs (1996), Nagaraj et al. (1998), and Rao, Shand and Kalirajan (1999).
A conditioning methodology using the same empirical tools further reveals that such income dynamics are explained by the disparate distribution of infrastructure and to an extent by fiscal deficit and capital expenditure patterns. Unlike standard methods, this model allows us to observe the income dynamics at different levels of the distribution. Infrastructure explains the formation of the lower convergence club, while fiscal deficits and capital expenditure patterns explains club formation at higher income levels. By helping to uncover the forces which govern growth dynamics across the Indian states, such stylized facts are interesting for policy purposes.
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