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Analytical Issues in Trade, Development and Finance pp 321–341Cite as

Infrastructure Development and Regional Growth in India

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Part of the book series: India Studies in Business and Economics ((ISBE))

Abstract

The present study attempts to understand the significance of variation in infrastructural (both physical and social) development in determining regional economic divergence in India. Preliminary analysis suggests that, at the cross-sectional level, there is a strong positive correlation between infrastructural development and level of state domestic product (SDP) growth in 15 major states. Further, this correlation only shows an increasing trend over a period of time. Presence of cointegration between both the infrastructural variables as well as SDP growth demonstrates the importance of infrastructure in promoting economic activity at the subnational level. Further, fully modified ordinary least square (FMOLS) result supports the importance of infrastructure variable on SDP. However, it also suggests that between the two, social infrastructure development was found to have greater impact on SDP growth. Finally, Granger causality results indicate the presence of bidirectional causation between SDP growth and infrastructure with a stronger causation running from social infrastructure to SDP growth than vice versa. Overall, the chapter concludes that unequal infrastructure endowment could be one of the drivers of growth divergence in India. It calls for higher investments on infrastructure, in particular in social infrastructure, if India has to achieve faster and inclusive growth in the medium to long term.

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Notes

  1. 1.

    A centralised planning system was advocated to curb the bias in economic development stemming out of difference in the level of resources available to states.

  2. 2.

    Ahluwalia 2000 and 2002, Nagaraj et al. 2000, Rao et al. 1999, Shand and Bhide 2000, and Aggarwal and Singh (2013) are some of the recent studies which observed the presence of increasing regional imbalance in India.

  3. 3.

    The World Development Report of 1994, by pointing out that productivity growth is higher in countries with an adequate and efficient supply of infrastructure services, endorses the instrumental role of infrastructure in the economic development process. Better infrastructure availability helps in attracting foreign capital and thus further helps in increasing and improving the production process which finally culminates in welfare.

  4. 4.

    According to the survey of firms in the World Bank investment climate assessment, infrastructure is considered as the major source of hurdle in business operation in developing and least developed countries.

  5. 5.

    They argue that a positive and statistically significant coefficient for a government input in an estimated ‘production function’ may only indicate the degree to which increased income causes an increased level of government activities.

  6. 6.

    To convert a nominal series into a real series, an SDP deflator has been used.

  7. 7.

    To conserve space, we have not reported the individual year plot figures.

  8. 8.

    Pedroni (2001) proposes two methods to apply this fully modified method to panel cointegration regression: the pooled (or within−group) panel FMOLS estimator and the group−mean (between−group) FMOLS estimator. Pedroni (2001) using Monte Carlo simulation shows that of the between−group and within-group estimators, the between-group estimator has a much smaller size distortion, whereas both are unbiased.

  9. 9.

    PP tests are likely to be more robust to fat tails in data.

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Authors and Affiliations

  1. Research Scholar at Dept. of Business Economics, Delhi University & ICSSR, Doctoral Fellow at Institute of Economic Growth, New Delhi, India

    Prakash Singh

  2. National Institute of Public Finance and Policy, New Delhi, India

    N. R. Bhanumurthy

Authors
  1. Prakash Singh
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  2. N. R. Bhanumurthy
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Correspondence to Prakash Singh .

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Editors and Affiliations

  1. Department of Economics, Jadavpur University, Kolkata, West Bengal, India

    Ambar Nath Ghosh

  2. Department of Economics, Jadavpur University, Kolkata, India

    Asim K. Karmakar

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Singh, P., Bhanumurthy, N. (2014). Infrastructure Development and Regional Growth in India. In: Ghosh, A., Karmakar, A. (eds) Analytical Issues in Trade, Development and Finance. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1650-6_19

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