Local Governments’ Impact on Market Accessibility of Enterprises: Understanding the Location Choices of Enterprises in Hajipur, India

Abstract

This paper seeks to determine the extent to which the government impacts the market accessibility of manufacturing enterprises in developing countries, specifically in the event of insufficient infrastructure. The paper utilizes a questionnaire-based survey of 153 enterprises of Hajipur in the Indian state of Bihar. On the basis of a statistical analysis of responses to the open-ended questions collected from representatives of the surveyed enterprises, the authors find that considerations of consumer market and profit directly drive the agglomeration of enterprises beyond (all) the other (examined) factors. The authors examine the relationship between local government support and market accessibility by using two methods of analysis, viz. OLS regression and the average treatment effect. There are six indices of local government support, covering particular subsidies, joint subsidies for production, and general support. The four indices for market accessibility have been constructed by assigning three-scale and five-scale categorization schemes of the locations of final production in both ascending and descending orders. The authors also find that the government support helps enterprises reduce cost and facilitates the sale of the enterprises’ final product in more distant markets. This research provides a new perspective on the role the government can play in fostering state-level prosperity in developing countries.