Inter-district Analysis of Credit Convergence: Outlooks from Neoclassical Growth and Panel Unit Root Models for West Bengal, India

Abstract

Maintaining equitable distribution of income is one of the priority agendas to any policy maker in a country or at the global level. It is not an exception to India as well as to its states and regions. The existing literature shows that Indian states are diverging in incomes particularly after the major reform programmes initiated in 1991–1992. Many factors contribute to the income divergence of the country. The present study throws light a bit deeper towards the grass root level and examines whether the districts of West Bengal are converging in terms of allocation of commercial bank credits for the period 1980–2014. Applying the neoclassical growth and panel unit root test methodology, the study reveals that the districts are not catching up to a common steady state level of per capita credit but they are conditionally converging to the credit of Calcutta, the top district, and to the average credit per capita of the district. The sigma convergence result shows that the districts are significantly diverging if Calcutta is restored in the group.