Impact of Growth Centres on Unemployment and Firm Location: Evidence from India

Abstract

In this part of the book, we move the focus away from incentives that are primarily financial, to physical incentives offered by state and local governments to attract firms. The most important of these physical incentives is infrastructure. In Part III of this book, consisting of this chapter and the next, I focus on infrastructure incentives. I present evidence from India’s growth centres (GCs), areas which offer incentives such as power, water, telecom, and banking to enable the states to attract industries. When we consider a developing country such as India, we find much greater regional disparities than those observed in developed countries. Because of this, the debate on convergence has occupied a great deal of attention in the development literature. Convergence implies that in a steady state, poorer regions can be expected to grow more rapidly than their richer counterparts. This occurs mainly as a result of the free flow of capital to the poorer regions (because of capital shortage, the rate of return to capital in such regions will be higher). Convergence also occurs because poorer regions need not reinvent the wheel: they can imitate the technological changes adopted by the richer regions.