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Does Infrastructure Play Role in Urbanization: Evidence from India

By Pradhan, Rudra Prakash | Indian Journal of Economics and Business, June 2007 | Go to article overview

Does Infrastructure Play Role in Urbanization: Evidence from India


Pradhan, Rudra Prakash, Indian Journal of Economics and Business


Abstract

The paper primarily focuses the role played by infrastructure in determining the level of urbanization in India and across its states. The analysis is based on construction of composite infrastructure development index by applying principal component analysis and then integrates the same with degree of urbanization. We have used cross-sectional data of Indian economy and it pertains to past quarter decades. The findings confirmed that infrastructure has a significant role in determining the level of urbanization in India. It finally concludes with suggestion that India needs a broad based policy to increase the level of infrastructure in the interest of urbanization in particular and overall balanced development in general.

JEL Classification: C51, H54, 018

I. INTRODUCTION

An achievement of balanced regional development is on of the outstanding objectives in any countries in the world. The attainment of this objective is, however, far away in India. There exist large-scale regional disparities across its states and regions. In fact, it is observed that there is significant variation between urban and rural development in the state itself. This is mostly because of variation of resources and the lumpy policy of the government. While about seventy per cent of its population live in rural economy, its contribution to GDP is about twenty per cent only. The probably reason is that rural economy is very predominant in agriculture and agriculture's performance is substantially low as a result of modest productivity, lack of modernization, slow diversification, stumpy availability of infrastructure, non-availability of rural non-farm opportunities and an existence of disguised employment.

One way to maintain the balance development in the economy is to keep stress on 'urbanization'. Urbanization transfers resources from rural, which ate in the form of miss utilized, under utilized and unutilized, to urban centres and simultaneously, brings resources, through rural-urban linkage, to the rural economy for its development. It is considerably true that urbanization becomes the key for reconstructing the entire economy, as it changes the sectoral composition of output, income and employment. Its progress more or less depends upon the advancement of urban economy, which rides on the expansion of industrialization in the country. But industrialization or the level of industrial development relies on the accessibility of resource base, level of technology, explicit and implicit government intervention and the availability of infrastructure in the economy (Henderson, 1999; Lee, 1988). Keeping in above back drop, present paper here explores the relationship between infrastructure and urbanization in the Indian economy.

The rest of the paper is organized as follows: Section II discusses the concept and importance of infrastructure. Section III describes the concept and importance of urbanization. Section IV highlights the methodology and data descriptions. Section V finally concludes with policy implications thereof.

II. INFRASTRUCTURE: CONCEPT AND IMPORTANCE

The importance of infrastructure for economic development could hardly be gainsaid, as the superstructure of a nation's overall wealth hinges on it (Ferrerira and Issler, 1995; Holtz-Eakin and Schwartz, 1995; Day and Zou, 1994; Easterly, 1993). It usually defines as underlying basic buildings, institutions and facilities or other essential elements that are necessary to sustain and enable economic growth in the economy (Sanchez-Robles, 1998; Canning et al., 1994). In other words, infrastructure represents as broad spectrum of activities and services without which no activity can be undertaken in the economy. It plays a key role in our society and constitutes the wheels, if not the engine of development (Prakash, 2005). Infrastructure increases economic productivity, gains degree of specialization (Bougheas et al.

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