Testing Club Convergence across Pakistan’s Districts by Using a Household Welfare Index

Abstract

The study of club convergence has taken center stage in the literature on economic growth and development over the last three decades. GDP per capita has usually been employed as a proxy for the measurement of national welfare in studies of convergence in living standards across regions.The analysis is based on an augmented household welfare index for measuring household living standards through convergence and the clustering techniqueproposed by Phillips and Sul (2007). The index is composed of five indicators of household welfare. Using principal component analysis, the indicators are aggregated to get a final household welfare index.Overall, the findings of the studyreject the hypothesis that all districts of Pakistan converge to a unique equilibrium stateregarding the household welfare index. When club convergence was tested, five convergence clubs and one group of divergent districts were discovered.The findings show that there is not a uniform living standard across all districts, and thus, policies need to be designed to lessen these spatial disparities.