Investigating the linkage between infrastructure a

InvestigatingthelinkagebetweeninfrastructureandregionaldevelopmentinIndia:eraofplanningtoglobalisation$BuddhadebGhosha,1,PrabirDeb,*aEconomicResearchUnit,IndianStatisticalInstitute,Calcutta,IndiabResearchandInformationSystemfortheNon-AlignedandOtherDevelopingCountries,NewDelhi,IndiaReceived24February2004;receivedinrevisedform20September2004;accepted4November2004AbstractThepapertriestofindouttheroleplayedbyeconomicandsocialinfrastructurefacilitiesineconomicdevelopmentacrossIndianstatesoverthelastquartercentury.Infrastructureserviceshavebeenindexedwiththehelpofprincipalcomponentanalysis.Bothparametricandnon-parametricestimatesaredonetoassesspercapitaincomedisparity.Acomparativestaticframeworkisdevelopedfortestingthenatureofmovementofthedevelopmenttrajectoryinincomeinfrastructureplaneoverdifferenttimespans.Thefindingsarestatisticallyverysignificanttowarrantnewregionalpoliciesundertheoverallframeworkofglobalisationinordertoremoverisingregionaldisparitiesinbothinfrastructureandincome.ThishasastrongbearingontheJournalofAsianEconomics15(2005)1023–1050$EarlierversionsofthepaperwerepresentedinconferencesonPlanningandBalancedRegionalDevelop-mentinIndia(1997),andGlobalisationandIndia:ImplicationsandtheChallengesAhead(1998),JadavpurUniversity;alsoatCentreforStudiesinSocialSciences,Calcutta(1998),NationalInstituteofPublicFinanceandPolicy,NewDelhi(1998),InstituteofEconomicGrowth,NewDelhi(1998),NationalCouncilofAppliedEconomicResearch,NewDelhi(2000),IndianInstituteofTechnology,Kharagpur(2002),InstituteofDevelopingEconomies,Chiba,Japan(2004).*Correspondingauthor.Tel.:[phone];fax:[phone].E-mailaddress:[e-mail](P.De).1VisitingResearchFellow,InstituteofDevelopingEconomies(JETRO),Chiba,Japan.1049-0078/$–seefrontmatter#2004ElsevierInc.Allrightsreserved.doi:10.1016/j.asieco.2004.11.002successofpovertyremovalpoliciesunderglobalisationasthepoorareregionallyconcentratedinsuchdiverseandheterogeneouscountry.#2004ElsevierInc.Allrightsreserved.JELclassification:R11;R12;H54Keywords:Infrastructure;Regionalinequality;Principalcomponentanalysis;Comparativestaticframework1.IntroductionAliciaMunnellstartsreviewinginfrastructureandeconomicgrowthprimarilyinthecontextoftheAmericaneconomyinthefollowingmanner:Bridgecollapsesandwatermainexplosionsfocusnationalattentiononthecrumblingconditionofthenation’sinfrastructure.Catastrophicinfrastructurefailuresarealwaysamomentaryspurtodebateonthenation’scapitalinvestmentpolicies.Butincreasinglythesenegativedevelopmentshavebeenaccompaniedbyeconomists’claimsthatpubliccapitalinvestmentmakesasignificantcontributiontonationaloutput,productivity,growth,andinternationalcompetitiveness.(Munnell,1992,p.69)ThestockofpubliccapitalintheUnitedStatesistoolarge:about$3.6trillionin2001whichishalfofthesizeofprivatecapitalstock(U.S.CensusBureau,2002).About34%ofthepubliccapitalstockgoestoconstructionandmaintenanceofhighwayandstreets,about30%tobuildingandstructuresforschooling,hospitalsandothers;andabout15%towaterandseweragesystems.Changeinpubliccapitalstructureisoneoftheimportantfactorsaffectingthelong-termbehaviourofacountry.TheabovereferencetotheUSeconomyiscertainlynotdirectlylinkedtoIndia’sinfrastructurerequirementsassuch.Butastrongpointcanbemadeoutofthisreasoningandthestaggeringnumbersandproportions:evenintheUSeconomy,awarenesstowardsinfrastructureand/orpubliccapitalhadbeenvirtuallyignoredbytheprofessionofeconomicsinitshighestorder.ItwasignoredintheUSAdespitetheearlyworksofMyrdal(1958),Hirschman(1958),Hansen(1965),Mera(1973)andothers.Tobemorespecific,Aschauer(1989a,1989b,1989c)setoffalongoverduedialoguebetweeneconomistsandpoliticians:declineinUSproductivitywasprecededbylowerinfrastructureinvestment.TheworksofMunnell(1990)confirmedtheseresults.Theninetiessawunprecedentedeffortsatbothacademicandgovernmentlevelstocreateawarenesstowardsincreasedinfrastructureinvestments.Themagicbuttonofeffortsatlinkingpubliccapitalinvestmentstonationaloutput,productivity,growth,internationalcompetitivenessaswellasregionaldisparitywason.Butcriticsarguethattheempiricalfindingsoverstatetheimpactonproductivitybyignoringotherfactors,thatthenatureanddirectionofcausalitybetweenpublicinvestmentandoutputgrowthisunclear,andthatevenifthehistoricallyestimatedempiricalrelationshipsarecorrect,theyfailtoprovideanycleardirectionforcurrentpolicy.Naturallytherefore,therearesubstantialvariationsintheestimatesreachedbyresearchersfordifferentcountriesandcontexts(see,forinstance,Binder&Smith,1996;Hackfoort,1996).B.Ghosh,P.De/JournalofAsianEconomics15(2005)1023–10501024Beyondtheneo-classicalsimplificationofclassifyingdifferentfactorsintoonlycapitalandlabour,aneconomy’sinfrastructurenetwork,broadlyspeaking,istheverysocio-economicclimatecreatedbytheinstitutionsthatserveasconduitsofcommerce.Someoftheseinstitutionsarepublic,othersprivate.Ineithercase,theirrolescanbeconversionary—helpingtotransformresourcesintooutputs—ordiversionary—transfer-ringresourcestonon-producers.Thedominantpresenceofthepublicsectoringeneratinginfrastructureservicesisguidedbytwofu