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Do economic reforms promote urbanization in India?

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Abstract

Recent urban population explosion in developing countries demands for several policy considerations. Is India ready for it? In this perspective, we assess the impact of economic reforms on urbanization in India for the period of 1991–2016. It is found that economic reform variables (except import of goods and services as % of GDP) have a positive effect on urbanization. The vector error correction model shows that economic reforms have influenced only on total urban population with a very slower rate with the speed of adjustment of 0.003. The short-run effect is also negligible. Granger causality test shows that there is no causal relationship between them. Therefore, we conclude that economic reforms do not promote urbanization in India. Our results also support the Krugman and Elizondo (J Dev Econ 49:137–150, 1996) hypothesis about the relationship between trade policy and urban agglomerations. Finally, we suggest that we need to promote urbanization through encouraging export for higher and sustainable economic growth in India.

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Notes

  1. Data available from the following web link: https://data.worldbank.org/.

  2. Here, the discussion on economic reforms is mainly derived from Ahluwalia (2002).

  3. The coefficient of the error correction term is negative and statistically significant. Therefore, it is consistent with error correcting behavior. The bigger the (negative) statistically significant coefficient, more rapid is the correction. Desirable values of ECM should lie between − 1 to 0. The coefficient being negative (− 0.0027) and significant means that the system corrects its previous period disequilibrium at a speed of 0.27% and it indicates a very slow speed of adjustment of disequilibrium correction for reaching long run equilibrium steady state position.

  4. Though Aristotle introduced a theory of causality, for the first time in human thought, but Clive W.J. Granger has proposed a first working definition of causality, which is called Granger causality in 1969. Hoover (2006) states that Granger-causality is the most influential approach to causality in economics. Recently, Sims (1972) provided a test of causality. However, one obvious limitation of Sims’ test is that it uses more regressors (due to inclusion of leading terms) and suffers from low degree of freedom. Therefore, we use Granger causality test for our analysis.

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  1. Department of Economics, Adamas University, Kolkata, 700126, India

    Sabyasachi Tripathi

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Tripathi, S. Do economic reforms promote urbanization in India?. Asia-Pac J Reg Sci 3, 647–674 (2019). https://doi.org/10.1007/s41685-019-00117-8

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