Income convergence and divergence
What is the rate of income convergence? what factors affect income convergence. These are some of the important research issues. It is obvious that per capita income in urban area is higher than that of rural area. The investment in Urban areas has higher rate of return. This is the main point of difference in rural and urban areas. To reduce relative poverty, there must be income convergence over time. If it diverges, it will increase income inequality and relative poverty. we can measure income convergence using beta and sigma convergence techniques. If we regress, rate of income growth against the base year per capita income, the negative coefficient gives beta convergence. Sigma convergence holds if cross sectional standard deviations of log of per capita income decreases over time. another way to measure the per capita income convergence is to estimate long term conintegrating relation. if urban and rural income series conitegrate with each other, then in the long run it will conv...
