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International Journal of Agricultural

Science and Research (IJASR)


ISSN(P): 2250-0057; ISSN(E): 2321-0087
Vol. 6, Issue 5, Oct 2016, 75-84
TJPRC Pvt. Ltd

REGIONAL CONVERGENCE OR DIVERGENCE?


A DISTRICT LEVEL ANALYSIS OF AGRICULTURE IN KARNATAKA
ARUN M 1, H CHANDRASHEKAR 2& PRADEEPA BABU B N3
1

Assistant Professor in Agricultural Economics, College of Horticulture, Kolar, University of Horticultural Sciences, Bagalkot,
Karnataka, India
2
3

Professor in Statistics, University of Agricultural Sciences, Bangalore, India

Subject Matter Specialist-Agricultural Economics, Market Intelligence Unit, Coffee Board, Ministry of Commerce and
Industry, Government of India, Bangalore, India

ABSTRACT
Economic growth could be incomplete without a regional balance. Agriculture sector plays a key role in
driving the economic growth. Therefore, regional imbalance in growth of agriculture would also be reflected in the
economy as a whole. Karnataka being one of the agriculturally important states of the country, disparities in growth
across its districts is evaluated in this paper. The convergence hypothesis states that the regions that lagged behind in
growth initially would catch-up with the rest and thus disparities could reduce over time. This hypothesis is tested for
convergence or divergence (low R2 and non-significant parameter) in the absolute convergence. But, the conditional
convergence results depicted that the states achieved convergence towards their own steady states at a rate of 1.5% per
annum and this process was negatively influenced by the two factors namely, proportion of commercial and plantation
crops area and proportion of irrigated area. Unit root test further supported the finding that higher growth among
regions with higher plantation crops area resulted in divergence across regions. Thus, it resulted in two convergence
clubs, those of poor and rich. This calls for a concentrated effort in agro-climatic regional planning to develop

Original Article

with three convergence tools and additionally with the unit root test. Prima facie, there was no indication of either

irrigation potentials of resource poor regions on priority so that farmers can undertake profitable enterprise and thus a
balanced regional growth.
KEYWORDS : Agriculture Growth, Disparity, Sigma Convergence, Absolute Convergence, Conditional Convergence

Received: Jul 28, 2016; Accepted: Aug 22, 2016; Published: Aug 26, 2016; Paper Id.: IJASROCT201609

INTRODUCTION
To strike a balance in growth (regional, sectoral, inter-personal, cultural etc) would be the objective of a
successful policy maker. The managers of Indian economy through various five year plans initiated discussion on
regional disparities in economic growth as early as in third and fourth five year plans. Taking clues from the
biased regional development behavior, the various governmental policies tried to even out such disparities.
The severity of such disparities being acute in rural areas, the government initiated programmes such as IRDP,
DADP, IAY, JRY and more recently MGNREGA. Some of these programmes were started as early as in 1970s
and 80s, but were not directly indicating their objective of addressing regional disparities.
Simultaneously, the public funds were also directed at developing the much needed infrastructure
facilities that were identified to be engines of development. As a part of policy response, for reducing
inter-regional disparities in agricultural growth, the agro-climatic regional planning (ACRP) was initiated in the

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76

Arun M, H. Chandrashekar & Pradeepa Babu B N

year 1988 (Alagh, 1990). ACRP is a decentralized planning process for identifying specific resource strengths of a region
and develop plans for sustainable agricultural development. Regions with similar agro-climatic conditions were classified
into specific zones/regions, and a package for development of agriculture, in that region was suggested. Thus, it provides
scope for regional specialization in specific enterprises suitable to each region which gives ability to reduce the regional
disparities. Though such policies were devised to reduce disparities, the same was found to increase, especially during late
1990s.
Though the primary sector was declining in importance, north-western states of the country showed higher growth
of agriculture sector in the country especially between 1960 and 80 (Green Revolution period) (Bhalla and Tyagi, 1989).
Initially, the adoption of HYV technology was limited to the states with better irrigation facilities (Punjab, UP, Haryana
and Maharashtra) which then spread to the other states, partially reducing the level of disparity and further enabling
self-sufficiency in food grain production (Ghosh, 2006). Differences in infrastructure facilities, natural and manmade
resources and the differences in Government policy support also lead to disparities in the agriculture development across
regions (Venkatesh, 2000; Venkatachalam, 2003). The increasing urbanization, incomes, changing lifestyle is impacting
even the agricultural production resulted in a changed focus from traditional food grain production to high value
horticultural and livestock production in certain regions of India (Joshi, 2010). The policy shift in early 1990s seems to
have further increased disparities across regions (Rao et al.,1999; Ghosh, 2006 etc). The study of disparities across Indian
states for latest decade indicated increasing disparities (Somasekharan, Prasad and Roy, 2011) which is a cause of concern.
The analysis of disparities which, earlier, was focused across continents was then studied across countries and
states and now the focus has further come down to district level. The need for such a disintegrated analysis was highlighted
by Ahluwalia (2011). Agriculture sector has been the focus of such disintegrated analysis as well. With a contribution of
4.3 per cent (2009-10) to the national agricultural economy, the prevalence of disparities within Karnataka state, which is
agriculturally important state, was highlighted by Nanjundapppa (2003). The disparities are more because of the high
regional diversity, with as many as 10 agro-climatic zones which is a limitation for achieving balanced growth.
The composition of state economy showed a declining contribution (from 30.7% in 1999-2000 to 14.7% in 2009-10) of
agriculture sector. It is mainly due to the shift in the structure of economy, towards service sector and the boom of IT
sector

in

the

state.

Prevalence

of

disparities

within

the

state

was

reiterated

by

studies

(Nanjundapppa, 2003, Venkatesh,1999). It is quite known fact that the southern districts are generally better in terms of
infrastructure facilities (because of the developmental works of the then Kings ruling the region), which is mostly lacking
in the northern parts.
The prevalence of disparities was identified as early as in V Five Year Plan (1974-79) emphasized the need for
regional planning to reduce such imbalances. Further in both V and VI Five Year Plans reducing regional inequalities was
one of the major objectives. Though Hyderabad Karnataka Development Board (HKADB) was created as early as in the
year 1992, the region is found to be lacking in development yet. Also, the statistics show that the most important resource
for agriculture, the irrigation is more developed in north, which gives us an impression of its better development in the
region. One of the reports of the Board indicates that there is no parallel development of infrastructure facilities in the
region which puts the region in a development lagging condition and hence raising the doubt about uniform development
of the different districts of the state. Therefore, it requires a deeper analysis.

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METHODOLOGY
The study has made use of the data on primary sector income (Net District Domestic Product) at current prices
published (District Income) by Directorate of Economics and Statistics (DES), Government of Karnataka. The per capita
agriculture income was arrived at by dividing with the respective rural population figures. The data was then deflated with
agricultural commodity price indices at 1980 prices for Karnataka state.
The methodology extensively used in the literature was that suggested by Barro and Sala-I-Martin
(Rao et al, 1999; Ghosh, 2006) which specifically examines development across regions over a period of time. Since this
methodology considers only initial and terminal point cross-section data and omits the intermediate data points in the
analysis, it has the lacuna of inconsistency. So, an alternative time-series methodology of univariate non-stationary
(unit-root) method was additionally employed in order to identify the districts converging to or diverging from the state
average path.
The convergence hypothesis says that, the growth rate in the districts with lower PCI should be higher than those
with higher PCI. This means that the inter-district differences in per capita output will reduce/disappear over time. This can
be tested with the help of 3 simple analytical tools viz., convergence, absolute convergence and conditional
convergence methods. While the first measure is a pure dispersion measure (standard deviation or coefficient of variation),
the second one employs simple linear regression with average growth in PCIA regressed on its base level values as below:
Gi,(t,t-) = [ln (Yi,t) ln (Yi,t-)] / = + ln (Yi,t-) + i,t

(1)

Absolute convergence prediction that initially poorer regions will grow faster than the rich ones depends on key
assumption that the regions differ in their levels of capital only. In reality, regions may differ in many other aspects. In
agriculture, things like climatic factors, technology adoption, credit availability, mechanization, market factors, labour
efficiency, literacy rate, etc., are dynamic. Hence these variables are included in the analysis and conditional convergence
is carried out by estimating the following equation.
k

Gi,(t,t-) = [ln (Yi,t) ln (Yi,t-)] / + j ln (Xji,t-)


j=1
k

= + ln (Yi,t-) + j ln (Xji,t-) + i,t

(3)

j=1

Further, as said above, since the convergence hypothesis omits the intermediate data points, the time series unit
root approach has also be used in the analysis. This methodology also facilitates the classification of regions into two
groups. Under this framework, convergence requires real per capita output differentials across regions to be stationary.
Using this methodology, we examine the convergence hypothesis by evaluating the univariate time series properties of the
differentials of PCIA of each of the 20 districts relative to the state average. A test of null hypothesis of no convergence
(i.e., stationary) is undertaken as follows:
Ho: Xi,t = [ln(Yi,t) ln (Y*,t)]~I(1)

for all i=1,2,, 20

H1: Xi,t = [ln(Yi,t) ln (Y*,t)]~I(0)

for all i=1,2,, 20

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Arun M, H. Chandrashekar & Pradeepa Babu B N

Where, Xi,t is logarithm of per capita output of the ith district, relative to the state average; ln(Yi,t) denote logarithm
of the ith district PCI; ln (Y*,t) denote logarithm of the state average PCI; I(1) is integrated of the order one (non-stationary)
and I(0) is integrated of the order zero (stationary). The significance is tested using tow () test.

RESULTS AND DISCUSSIONS


The concept of convergence as per the neo-classical growth theory assumes that, the geographical regions with
lower PCI in the early periods tend to achieve higher pace in growth to show converging trend with those having higher
base. Though there are inter-sectoral disparities, a path of convergence is expected within the sectors, as the unused
resources (in initial low growth region) tend to get used up in the production process to result in uniform state of growth.
Table 1 depicts the cross-sectional dispersion (coefficient of variation) of the 20 districts of Karnataka. There was
no specific trend in the cross-sectional dispersion of PCI of districts but there was a cyclical trend observed. This cyclical
pattern was a common observation for the agriculture sector (Ghosh, 2006; Bhide et al, 1998). The disparity peaked in the
year 1997-98 (54.04%) and reached a low of 27.05 per cent in the year 2003-04. There was a clearly declining spread in
PCIA between 1997-98 and 2003-04, then again showing an upbeat (Table 1; Figure 1).
Time trend of spread in district agricultural income is estimated with the help of the OLS estimation of CV (Yt)
against time (t). The third degree polynomial equation was found to have best fit among other polynomials and the same is
depicted in equation (4).
Yt = 35.28*** + 5.99 t 0.96 t2* + 0.003* t3

[R2 = 0.56]

(4)

The average spread of the PCIA for the study period was around 35.28 per cent with the trend showing two turns
(figure 1), as depicted in the equation. Thus, there is no clear trend in any one direction and the same needs to be probed
further.
Table 1: Coefficient of Variation of the Per Capita Agricultural
Income of THE Districts of Karnataka over Time
Years
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

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CV
45.79
42.03
43.06
32.77
49.53
47.83
54.04
45.34
42.47
38.02
33.65
30.83
27.05
50.10
49.19
48.08
52.05

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Regional Convergence or Divergence? A District Level Analysis of Agriculture in Karnataka

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Figure 1: Coefficient of Varation of PCIA (1980-81 Prices) Over Time and Its Trend Line
Hence a regression analysis of average growth rate of the PCI on its base levels that depicts even the average pace
of convergence was attempted.
Gi,(t,t-) = 0.13* 0.017NS ln (Yi,t-)
(1.77) (-1.62)

(5)

[R2 = 0.12]

The low R2 apart from non-significant coefficients indicate that there are other variables that influence its growth.
But, despite non-significance the coefficient recorded negative sign indicating the possible convergence across the districts.
Since this analysis in itself does not suffice our purpose, further probing is done with conditional convergence. As per
Ghosh (2006), existence of conditional convergence signifies that the regions to converge only towards their own steady
states; the regional variations in agricultural performance may be explained in terms of regional variations in steady states.
Therefore, some of the variables influencing agricultural growth, identified from past literature, have been included in the
analysis.
Results pertaining to conditional convergence are represented in the table 2. Initially, when higher number of
variables were used in the regression analysis, higher R2 was recorded but only one variable was significant. Thus,
step-wise regression with backward elimination and forward addition were tried to find if there was any meaningful
improvement in the explanatory capacity of the equation. Also, there was chance of occurrence of multi-collinearity among
variables. So, this would greatly help to identify the explanatory variables that will have least correlation among them and
would represent a meaningful regression. The results of backward elimination in step-wise regression which gave
maximum number of significant variables along with better R2 was considered and the same has been represented in table
2. The table shows step-wise deletion of variables and finally ending up with two conditional variables (last iteration in the
table) having significant impact on the steady state growth. The variables having significant impact were commercial and
plantation crops as proportion of net sown area and proportion of net irrigated area. While the PCIA exhibited
convergence, the two conditional variables were found to be negatively impacting the convergence process. This can be
justified, as the regional imbalances in the distribution of irrigation and commercial and plantation crops may have resulted
in regionally imbalanced growth. The R2 value also was found to be convincingly higher at 0.64, justifying our analysis.
The coefficient of initial PCIA (0.015) indicates that the speed of convergence to be about 1.5 per cent per
annum and significant (at 10%). But, as said above, the inclusion of conditional variables to depict convergence implies
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Arun M, H. Chandrashekar & Pradeepa Babu B N

convergence to different steady states and not to the state average. Also, this analysis provides only an indication of either
convergence or divergence, but cannot tell much about its long-term trend, because of the limitation of the methodology
which considers only initial and terminal year data ignoring the intermediate data points (lacking temporal dynamism)
Table 2: Stepwise Regression and Identification of Significant Variables Influencing the Dependent Variable
Iteration

II

III

IV

VI

Dependent Variable: Average Growth of Per Capita Agricultural


Income
(Constant)
Initial Per capita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area
NPK used per hectare of Net Sown Area
ST/MT loan disbursed per hectare of Net Sown Area
Cropping Intensity
No. of Regulated Markets per 1000 ha of NSA
Public Investment (Lakh Rupees) per unit of NSA
(Constant)
Initial Percapita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area
NPK used per hectare of Net Sown Area
Cropping Intensity
No. of Regulated Markets per 1000 ha of NSA
Public Investment (Lakh Rupees) per unit of NSA
(Constant)
Initial Percapita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area
NPK used per hectare of Net Sown Area
Cropping Intensity
No. of Regulated Markets per 1000 ha of NSA
(Constant)
Initial Percapita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area
Cropping Intensity
No. of Regulated Markets per 1000 ha of NSA
(Constant)
Initial Per capita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area
Cropping Intensity
(Constant)
Initial Per capita Agricultural Income
Proportion of Area under Commercial & Plantation Crops
Proportion of Irrigated Area

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0.10
-0.02
-0.01
-0.01
0.00
0.00
-0.07
-0.00
-0.00
0.09
-0.02
-0.01
-0.01
0.00
-0.07
-0.00
-0.00
0.06
-0.02
-0.01
-0.01
0.00
-0.07
-0.01
0.06
-0.02
-0.01
-0.01
-0.08
-0.01
0.10
-0.02
-0.01
-0.01
-0.07
0.07
-0.02
-0.01
-0.01

T-Value
0.71
-1.81
-1.72
-1.39
0.43
0.26
-0.98
-0.40
-0.32
0.69
-1.88
-1.79
-1.44
0.45
-1.04
-0.46
-0.28
0.79
-1.95
-1.85
-1.47
0.37
-1.13
-0.80
0.79
-2.02
-1.90
-1.49
-1.34
-0.96
1.56
-1.88
-2.87
-1.59
-1.15
1.23
-1.78
-3.56
-2.60

R2

0.64

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81

Unit Root Test for Examining Convergence to Steady State Growth


Because of the above inconsistencies and some of the unrealistic assumptions (Ghosh, 2006), an alternative
method has been used in the literature (Choi, 2003 and Ghosh 2006). Under the time series framework, convergence
requires that the real per capital income differential across districts to be stationary. This analysis was undertaken using
three separate equations viz., linear time trend along with slope and intercept (t), slope and intercept ( intercept) and only
slope ( none). The results of the above test are depicted in table 3. We can observe from the table that the null hypothesis
of no convergence (non-stationarity) is rejected against the alternative hypothesis, for 9 districts, when the equation with
time trend was considered. So, about half the number of districts exhibited convergence to the state average. When the
linear equation was tested for existence of unit root, only Bidar and Tumkur districts exhibited the convergence path, at 1
per cent level of significance and six districts viz., Dharwad, Hassan, Kodagu, Mandya, Raichur and Uttar Kannada,
rejected the null hypothesis of no convergence at 5 per cent level. Belgaum, Bellary and Chickmagalur districts accepted
the alternative hypothesis of convergence at 10 per cent level.
The unit root test with no intercept exhibited convergence at 1 percent level of significance for the two districts of
Bellary and Bijapur and 4 districts at 5 percent level of significance. The districts exhibiting convergence were Bangalore
rural, Bijapur, Dharwad and Mysore districts. Bangalore Urban, Gulbarga, Kolar and Tumkur districts rejected null
hypothesis of no convergence at 10 percent level of significance. Considering the three different fits, one can find that, the
linear equation with intercept had highest number of districts (11), showing steady state growth indicating the path of
convergence to the state average. These results are in conformity with that of the conditional convergence analysis carried
out earlier (Ghosh, 2006; Ravi, 2008).
While Bellary was the only district which showed convergence path in all the three equations, Shimoga, Dakshina
Kannada and Kodagu districts (Malnad districts with plantation crops) did not show converging trends in any of them. This
is an indicator that these districts are the cause for divergence in the district incomes of the state. This finding further
corroborates our own findings earlier in this paper that the area under plantation crops causes a divergence as indicated by
the conditional convergence analysis. While in case of Chitradurga (a dry region) and Uttar Kannada (coastal) districts, the
PCIA was one of the lowest and in case of Shimoga, with their high extent of area under plantation and commercial crops
the PCIA was one among the highest, showing a diverging trend from the state average.
Another point to be observed is that, the districts with converging trend towards state average show convergence
towards one steady state, those showing divergence, would converge to a different steady state, forming two different
convergence clubs, those of poor and rich, separately. Similar results were obtained for district incomes by Ravi (2008).
Table 3: Unit Root Test for Convergence of District Income with the State Averages (H0: b=0)
Districts
Bangalore (U)
Bangalore (R)
Belgaum
Bellary
Bidar
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Coefficient
Critical Value
Coefficient
Critical Value
Coefficient
Critical Value
Coefficient
Critical Value
Coefficient
Critical Value

t Trend
-6.08***
-4.80
-2.06
-3.31
-3.30
-3.31
-4.47**
-3.83
-4.18**
-3.76

intercept
-0.96
-2.70
-1.91
-2.67
-2.69*
-2.67
-3.02*
-2.67
-4.01***
-3.96

None
-1.67*
-1.60
-1.98**
-1.96
-2.81***
-2.72
-2.95***
-2.72
0.07
-1.60
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Arun M, H. Chandrashekar & Pradeepa Babu B N

Coefficient
-4.50**
-2.15
-2.39**
Critical Value
-3.83
-2.67
-1.96
Coefficient
-3.49*
-3.68*
-0.60
Chickmagalur
Critical Value
-3.34
-2.69
-1.61
Coefficient
-2.24
-1.31
0.230483
Chitradurga
Critical Value
-3.31
-2.67
-1.61
Coefficient
-1.78
-1.88
-0.41
D.K.
Critical Value
-3.31
-2.67
-1.61
Coefficient
-3.51*
-3.46**
-2.66**
Dharwad
Critical Value
-3.34
-3.10
-1.96
Coefficient
-3.44***
-2.58
-1.89***
Gulbarga
Critical Value
-3.31
-2.67
-1.61
Coefficient
-3.10
-3.53**
-3.70
Hassan
Critical Value
-3.36
-3.12
-1.60
Coefficient
-3.00
-3.16**
-0.14
Kodagu
Critical Value
-3.31
-3.07
-1.61
Coefficient
-2.08
-1.76
-1.80***
Kolar
Critical Value
-3.31
-2.67
-1.61
Coefficient
-3.30
-3.32**
-2.48
Mandya
Critical Value
-3.31
-3.07
-1.61
Coefficient
-3.32***
-2.59
-2.66
Mysore
Critical Value
-3.31
-2.67
-1.96**
Coefficient
-2.95
-3.10**
-0.55
Raichur
Critical Value
-3.34
-3.10
-1.61
Coefficient
-3.16
-1.50
-1.70*
Shimoga
Critical Value
-3.31
-2.67
-1.60
Coefficient
-5.23***
-5.28***
-0.15
Tumkur
Critical Value
-4.67
-3.92
-1.61
Coefficient
-3.39*
-3.43**
0.27
UK
Critical Value
-3.31
-3.07
-1.61
Note: ***, ** and * indicate significance at 1, 5 and 10% level of significance
Bijapur

CONCLUSIONS
The efforts of planning process, both at the national and state level, has been to achieve balanced regional growth.
The convergence hypothesis, assuming that the regions differ only in capital, hypothesizes that the regions converge over
period of time with the efficient use of the unused resources. But, the preliminary investigation (absolute convergence) did
not show any significant trend. Further probing with conditional convergence accounting for regional factors showed that
there was convergence at the rate of 1.5 per cent per annum. But, the uneven distribution of irrigation facilities and
commercial and plantation crop area had negative bearing on the convergence process. Also, this implies that the regions
do not converge to one steady state. Thus, the time series test of stationarity showed that, as many as 11 districts converged
to the state average and resulted in the formation of convergence club. These 11 districts were important with respect to the
agricultural development in the state and depicted a meaningful classification.
Since even Karnataka state has adopted agro-climatic regional planning, it would be appropriate to consider these
factors in planning and encourage growth of profitable enterprises, with higher vigour. So, the planning process may have
to focus more on the districts with lower PCIA, in terms of development of irrigation potentials, by which the farmers will
be able to grow better and remunerative crops. With the dwindling surface water and exhausting ground water resources, it
may be a real challenge for the policy makers to attend to such needs.

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