“Are Shocks to Real Output Permanent or Transitory?” Evidence from a Panel of Indian States and Union Territories
DOI:
https://doi.org/10.14665/1614-4007-23-1-008Keywords:
India, Mean reversion, Panel Unit root test, Per capita GDP, Unit rootAbstract
Mean reversion properties of per capita SDP of 31 Indian states and Union territories have been analyzed using panel unit root test assuming cross sectional independence among Indian states and later relaxing this assumption. The first generation panel unit root test assuming cross sectional independence shows that Indian per capita GDP data contains unit root. The second generation panel unit root test, relaxing the cross sectional independence assumption, also provides no evidence for mean reversion (stationarity) of Indian per capita GDP. Our results indicate that Indian output data is not reverting back to the natural rate and stabilization policies are required to bring the economy to the equilibrium path.
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