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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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  • Somik Vinay Lall & Sanjoy Chakravorty, 2005. "Industrial Location and Spatial Inequality: Theory and Evidence from India," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 47-68, February.
  • Handle: RePEc:bla:rdevec:v:9:y:2005:i:1:p:47-68
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    References listed on IDEAS

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    1. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    2. Lall, Somik V. & Shalizi, Zmarak & Deichmann, Uwe, 2004. "Agglomeration economies and productivity in Indian industry," Journal of Development Economics, Elsevier, vol. 73(2), pages 643-673, April.
    3. Sanjoy Chakravorty, 2003. "Capital source and the location of industrial investment: a tale of divergence from post-reform India," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(3), pages 365-383.
    4. Hanushek, Eric A & Song, Byung Nak, 1978. "The Dynamics of Postwar Industrial Location," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 515-522, November.
    5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    6. 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.
    7. George H. Borts, 1960. "Regional Cycles of Manufacturing Employment in the United States, 1914-1953," NBER Chapters,in: Regional Cycles of Manufacturing Employment in the United States, 1914-1953, pages 1-61 National Bureau of Economic Research, Inc.
    8. George H. Borts, 1960. "Regional Cycles of Manufacturing Employment in the United States, 1914-1953," NBER Books, National Bureau of Economic Research, Inc, number bort60-1, April.
    9. 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.
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