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Industrial Location and Spatial Inequality: Theory and Evidence from India

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  • Somik Vinay Lall
  • Sanjoy Chakravorty

Abstract

The authors argue that spatial inequality of industry location is a primary cause of spatial income inequality in developing nations. Their study focuses on understanding the process of spatial industrial variation: identifying the spatial factors that have cost implications for firms, and the factors that influence the location decisions of new industrial units. The analysis has two parts. First the authors examine the contribution of economic geography factors to the cost structure of firms in eight industry sectors and show that local industrial diversity is the one factor with significant and substantial cost-reducing effects. They then show that new private sector industrial investments in India are biased toward existing industrial and coastal districts, whereas state industrial investments (in deep decline after structural reforms) are far less biased toward such districts. The authors conclude that structural reforms lead to increased spatial inequality in industrialization, and therefore, income. Copyright United Nations University 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 9 (2005)
Issue (Month): 1 (02)
Pages: 47-68

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Handle: RePEc:bla:rdevec:v:9:y:2005:i:1:p:47-68

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References

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  1. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
  2. Lall, Somik V. & Funderburg, Richard & Yepes, Tito, 2003. "Location, concentration, and performance of economic activity in Brazil," Policy Research Working Paper Series 3268, The World Bank.
  3. Lall, Somik & Shalizi, Zmarak & Deichmann, Uwe, 2001. "Agglomeration economies and productivity in Indian industry," Policy Research Working Paper Series 2663, The World Bank.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Edward Feser & Edward Bergman, 2000. "National Industry Cluster Templates: A Framework for Applied Regional Cluster Analysis," Regional Studies, Taylor & Francis Journals, vol. 34(1), pages 1-19.
  6. Markusen, Ann & Hall, Peter & Campbell, Scott & Deitrick, Sabina, 1991. "The Rise of the Gunbelt: The Military Remapping of Industrial America," OUP Catalogue, Oxford University Press, number 9780195066487.
  7. J. Vernon Henderson, 2000. "The Effects of Urban Concentration on Economic Growth," NBER Working Papers 7503, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Lall, Somik V. & Mengistae, Taye, 2005. "Business environment, clustering, and industry location : evidence from Indian cities," Policy Research Working Paper Series 3675, The World Bank.
  2. Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2006. "Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector," William Davidson Institute Working Papers Series 822, William Davidson Institute at the University of Michigan.
  3. Megha Mukim, 2011. "Industry and the urge to cluster: a study of the informal sector in India," LSE Research Online Documents on Economics 33592, London School of Economics and Political Science, LSE Library.
  4. Vinish Kathuria, 2011. "What Causes Agglomeration? – Policy or Infrastructure – A Study of Indian Manufacturing Industry," Working Papers id:4473, eSocialSciences.
  5. Bhaumik, Sumon K. & Kumbhakar, Subal C., 2008. "Impact of Reforms on Plant-Level Productivity and Technical Efficiency: Evidence from the Indian Manufacturing Sector," IZA Discussion Papers 3347, Institute for the Study of Labor (IZA).
  6. Bhaumik, Sumon Kumar & Gangopadhyay, Shubhashis & Krishnan, Shagun, 2007. "Entry, reforms, complementarity and performance: A tale of two Indian manufacturing sectors," Economic Systems, Elsevier, vol. 31(4), pages 375-390, December.
  7. Andersson, Martin & Klinthäll, Martin, 2012. "The opening of the North–South divide: Cumulative causation, household income disparity and the regional bonus in Taiwan 1976–2005," Structural Change and Economic Dynamics, Elsevier, vol. 23(2), pages 170-179.
  8. Jean-Paul Faguet & Mahvish Shami, 2008. "Fiscal policy and spatial inequality in Latin America and beyond," LSE Research Online Documents on Economics 27162, London School of Economics and Political Science, LSE Library.
  9. Chaudhuri, Shubham & Ravallion, Martin, 2006. "Partially awakened giants : uneven growth in China and India," Policy Research Working Paper Series 4069, The World Bank.
  10. Lall, Somik V. & Mengistae, Taye, 2005. "The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry," Policy Research Working Paper Series 3664, The World Bank.
  11. Thakur, Sudhir K., 2008. "Identification of Regional Fundamental Economic Structure (FES) of India: An Input-Output and Field of Influence Approach," Working Paper Series RP2008/59, World Institute for Development Economic Research (UNU-WIDER).
  12. Stefania Lovo, 2014. "The effect of environmental decentralization on polluting industries in India," Grantham Research Institute on Climate Change and the Environment Working Papers 143, Grantham Research Institute on Climate Change and the Environment.
  13. Fernandes, Ana M. & Sharma, Gunjan, 2012. "Together we stand ? agglomeration in Indian manufacturing," Policy Research Working Paper Series 6062, The World Bank.
  14. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632, October.
  15. Brata, Aloysius Gunadi, 2009. "Does Geographic Factors Determine Local Economic Development?," MPRA Paper 15817, University Library of Munich, Germany.
  16. Kanbur, Ravi & Venables, Anthony J., 2005. "SPATIAL INEQUALITY AND DEVELOPMENT Overview of UNU-WIDER Project," Working Papers 127127, Cornell University, Department of Applied Economics and Management.
  17. Brijesh C. Purohit, 2012. "Health Policy, Inequity and Convergence in India," Working Papers 2012-074, Madras School of Economics,Chennai,India.
  18. Bhaumik, Sumon Kumar & Kumbhakar, Subal C., 2010. "Is the post-reform growth of the Indian manufacturing sector efficiency driven? Empirical evidence from plant-level data," Journal of Asian Economics, Elsevier, vol. 21(2), pages 219-232, April.
  19. Tripathi, Sabyasachi, 2012. "Estimating Urban Agglomeration Economies for India: A New Economic Geography Perspective," MPRA Paper 43501, University Library of Munich, Germany.
  20. Somik V. Lall, 2009. "Territorial Development Policy : A Practitioner's Guide," World Bank Other Operational Studies 12698, The World Bank.

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