Does Distance Matter in Convergence Among Indian States?

We investigate convergence among Indian states between 1981 and 2016 using the distance of any state from the leading state as our key variable. We focus on the role of three major sectors—agriculture, manufacturing, and infrastructure—in achieving convergence. Prima facie, we do not find any firm evidence of convergence in our dataset. However, unit root tests both at the state level and in panel data confirm convergence. Considering the three main sectors strengthens our findings, indicating that an increase in the relative income gap with the leading state is associated with a decrease in the Distance variable. This is consistent with the notion of convergence. Agriculture, Manufacturing, and Infrastructure variables demonstrate statistically significant relationships with distance, and each has its own individual impact, in terms of magnitude and direction, on convergence. Additionally, we find that the overall effect of each of these three major variables is actually dependent on the distance. Our results remain robust to alternative estimation methods.