An investigation of intrastate income disparities and regional convergence in Odisha

Abstract

This study examines the intrastate income disparities in Odisha by evaluating the σ-convergence and absolute and conditional β-convergence in income per capita across the districts of Odisha over the time period from 1995–1996 to 2010–2011. Employing measures of σ-convergence (Gini coefficient and Theil inequality index) and β-convergence (absolute and conditional), it examines not only the intrastate income disparities but also if the poorer districts have been able to catch up with the richer ones. The results of σ-convergence indicate an increase in intrastate income disparities in Odisha since the beginning of the new century, which is largely attributed to within-division inequality. Ironically, Odisha has witnessed a rise in regional disparities in its period of boom and vice versa, indicating thereby that growth fails to create “trickledown effect.” The absolute β-convergence measure proves income divergence across the districts of Odisha. However, if the factors causing regional disparities like economic structure, institutional quality and spillover effects are controlled for, there is conditional convergence. Since the income divergence across districts is due to variations in their steady states, targeting investment toward promoting farm incomes in districts having lower steady-state levels may improve growth performance while reducing regional imbalance. Measures to ensure institutional quality and create greater inter-district interdependence through removal of mobility barriers may help the poorer districts catch up with the richer ones. Targeted efforts to ensure laggard districts to grow faster than the developed ones will help Odisha realize regional inequality narrowing effects within a reasonable time.