What explains Regional Imbalances in Infrastructure?: Evidence from Indian States

The literature on regional growth suggests that divergences in infrastructure is a major factor behind the wide and persistent regional growth imbalances in India. Using a state infrastructure-expenditure function, the paper examines the possible factors that determine infrastructure expenditure and its implication for regional imbalance in infrastructure creation across 14 major Indian states. We, in the present study, find that factors such as resource mobilization, per capita income, and population density may result in unequal infrastructure expenditure across states. We also find that factors such as more spending by the infrastructure-deficit states, political stability, and positive spatial dependence in infrastructure expenditure among states have a balancing effect on infrastructure creation across regions. These results suggest the need for augmenting the financial capacity of the infrastructure-deficit states and strengthening the positive spatial dependence among states through creation of interstate infrastructure networks (railways, national highways etc.) and conducive investment climate, which could boost competition among states for better infrastructure creation.