Debesh Bhowmik
Inclusive growth strategy and the goal of sustainable development of every economy should fulfill the convergence of growth rates of all the states during the specified period otherwise distributional effects or redistribution of income would go against the sustainability. Divergence of growth in states may appear disparity in state capital formation process as well as widening inequality.
I have done econometric test convergence of growth rates among Indian states during 1980-81 -2009-10.I have taken 28 major states whose net states domestic products from CSO data are readily available from the RBI.I have compare the results with the pre-reform (1980-81-1990-91) and post-reform (1991-92-2009-10) periods respectively. I have followed the Sala-i-Martin technique of Bita and Sigma convergence econometric tests.
Firstly,I found that the net state domestic product of 28 Indian states had no convergence of growth rates during the study period of 1980-81-2009-10 because Bita convergence criteria did not show any significant results.Since,the linear equation between growth rates of net domestic state products of 28 states and the 5 year averages of initial values showed insignificant because the t values (showed in the brackets) of co-efficient of initial values was found insignificant ,F is insignificant and R2 is very low.
βi = 13.21766 + 0.0000577Xi
(35.878)* (1.1087)
R2 = 0.0468 , DW = 1.5232 , F = 1.2292
Where βi= growth rates of NSDP of all states , Xi = 5 year average of initial values and
* = significant at least 10% significant level.
Again,the sigma convergence criteria proved that the log linear straight line with respect to time period of the coefficient of variation of all 28 states during the same period showed insignificant because t value of the co-efficient is found insignificant as well as F value is insignificant and R2 is very low.
Logδ = -0.0606 + 0.001844 t
(-1.696)* (0.8567)
R2=0.0274 , DW = 1.749 , F = 0.733 where δ = coefficient of variation of growth rates of 28 states during the said period. T = time.
Therefore, δ convergence is not significant and all the states had no growth rate convergences during 1980-81-2009-10 .
Now, if I consider the pre-reform period ie during 1980-81 – 1990-91 , we could found the following results;
Log(βi) = 2.529 -0.00000417Ki
(44.53)* (-0.5236)
R2=0.014 , DW = 0.757 , F=0.2742
Where βi = growth rates of NSDP of 28 states during 1980-81-1990-91 and Ki = 5 year average of initial values of NSDP.
Since t value of the co-efficient is not significant, F is not significant ,so the sigma convergence is insignificant .
Let us show the econometric test of sigma convergence of the variable during the pre-reform period whose results are given below.
Log(Yi) = 0.0754 +0.00309 t
(8.303)* (2.307)*
R2=0.3737 , DW=0.836 , F= 5.325* where Yi = coefficient of variation of the NSDP of 28 states during the said period , t= time period and *=significant. Since the t value of the coefficient is significant and F is significant in case of divergence then the δ divergence criteria is significant.
As a result , the conclusion can be drawn un-hesitantly that convergence of growth rate of NSDP during the pre-reform is not satisfied.
Now, assume the period of post-reform ie during 1991-92-2009-10 to test the convergence criteria for NSDP of 28 states.The results are given below;
Log(βi) = 2.519 – 0.000000166 Mi
(89.60)* (-0.584)
R2 = 0.0129 , DW = 2.08 , F = 0.341
Where βi = growth rates of NSDP of 28 states during 1991-92-2009-10 and Mi = 5 year average of initial values of NSDP in the post reform period.. Since t value of the coefficient is found insignificant and F is insignificant and R2 is very low, so the Bita convergence criteria is not satisfied ie no Bita convergence of growth rates of NSDP of 28 states during the post reform period in India.
Lastly, look at the econometric test for sigma convergence criteria whose results are given below.
Log(CV) = 0.6596 – 0.0876 t
(1.36) (-1.948)*
R2 = 0.191 , DW = 1.139 , F = 3.795
Where CV = coefficient of variation of growth rates of NSDP of all 28 states during post reform period. T = time period. * = significant at least 10% level.
The equation showed that t value of the coefficient is found significant , F value is found significant and DW is moderate ,therefore, the sigma convergence criteria is significant.Thus, during the post reform period the NSDP of all 28 states showed convergences of growth rates.
So, we cannot conclude that growth rate of 28 NSDP converge because bita convergence criteria is not satisfied whereas sigma convergence criteria is satisfied in the post reform period.
Above all, Indian states did not show any growth rate convergence during 1980-81-2009-10 for which regional disparity emerge and the process of sustainable development hampers.So to say, the target of inclusive growth must not be realized.