Do Growth Accelerations Help Economies Escape From Low-Growth Traps? Evidence From Indian States

Abstract

Developing economies are frequently caught in low-growth traps. This paper attempts to test whether a significant growth up-break, known popularly in the literature as growth accelerations, can enable them to break out of such traps. A three-step process is adopted to test this hypothesis. The first step involves identifying economies caught in low-growth traps using the convergence club framework. The second step identifies all growth transitions, that is, growth accelerations and slowdowns, exhibited by these economies. The third step investigates whether having a growth acceleration is positively correlated with converging to a higher-performing growth club, controlling for initial conditions and growth slowdowns. Using this three-step process and using data from subnational regions of India, we next test our hypothesis. Our results show that growth accelerations have indeed played a significant role in club formation in India, enabling subnational regions with such accelerations to break into higher-growth convergence clubs. Finally, drawing on the growth transition literature, our analysis suggests policy strategies for low-growth economies that can help them to ignite growth accelerations and escape to higher-performing clubs.