Remoteness and Unbalanced Growth: Understanding Divergence Across Indian Districts

The existing literature on Indian growth finds no evidence of convergence across states. This represents a puzzle given the relatively free flows of capital, labor and commodities across state borders. We use a new data set of district level income and socio-economic data to explore the hypotheses of conditional convergence, using distance as a indicator of internal geographical trade and migration costs. We find evidence of conditional convergence for Indian districts but at a rate that is only half of Barro’s “Iron Law”. From a policy perspective the results suggest that infrastructure supply is critical for achieving a more balanced pattern of growth in India.