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Interstate Inequality in India Slides 2020
Interstate Inequality in India Slides 2020
February 2020
The Neoclassical (Solow-Swan) Model of
economic growth predicted that countries having
the same technology, population growth rate and
savings rate would converge to the same steady-
state level of per capita GDP in the long run.
During this process, poorer countries would grow
faster and eventually catch up with richer
countries. (Reason: diminishing returns to K.)
If countries differ in technology etc, they will
converge to different steady states.
The tendency to converge should be stronger
for states/regions within a country, because:
◦ Intra-national differences in technology, savings
and population growth rates should be less than
international differences;
◦ Relatively freer movement of factors within a
country should allow reallocation of K from capital-
abundant to capital-scarce regions with higher
productivity and rewards for K; vice versa for L.
◦ Relatively freer movement of goods within a country
should reinforce this (FPE theorem).
σ-convergence: calculate a measure of
dispersion of the distribution of the
national/regional per capita GDPs for each
year and check if there is an increasing or
decreasing trend over time.
◦ BUT do not use the standard deviation or variance:
they fail the property of ‘scale invariance’.
◦ Use one of the following:
the max/min ratio (very crude)
the coefficient of variation
the standard deviation of the logs of the pcGDP
the Gini coefficient
β-convergence: fit a regression equation of the
following form, where y is pcGDP, i indexes
states, and is the initial year:
ln ln
, ≡