Economic Geography of Industry Location in India :: India Economics Industries Essays

Economic Geography of Industry Location in India ____________________________________ Paper prepared for the UNU/WIDER Project Conference on Spatial Inequality in Asia 3 Economic Geography of Industry Location in India Where do different industries locate? What factors influence the spatial distribution of economic activity within countries? Finding answers to these questions is important for understanding the development potential of sub national regions. This is particularly important for developing countries as they have relatively lower levels of overall investment and economic activity is concentrated in one or a few growth centers. Thus, regions that do not attract dynamic industries are not only characterized by low productivity, but also by lower relative incomes and standards of living. These questions on industry location and their implications are not new. Examining the locational aspects of economic activity has long been of interest to geographers, planners, and regional scientists (Weber, 1909; Là ¶sch, 1940; Hotelling, 1929; Greenhut and Greenhut, 1975, Isard 1956). However, analytic difficulties in modeling increasing returns to scale marginalized the analysis of geographic aspects in mainstream economic analysis (Krugman 1991). Recent research on externalities, increasing returns to scale, and imperfect spatial competition (Dixit and Stiglitz 1977; Fujita, et al. 1999; Krugman 1991) has led to renewed interest in analyzing the spatial organization of economic activity. This is especially true in case of geographic concentration or clustering. Models in the ‘New Economic Geography’ literature (see review in Fujita, Krugman, and Venables, 1999) allow us to move from the question ‘Where will manufacturing concentrate (if it does)?’ to the question ‘What manufacturing will concentrate where?’ These insightful theoretical models provide, for the most part, renewed analytical support for the â€Å"cumulative causation† arguments made in earlier decades on the core-periphery relationship, on agglomeration economies, and on industrial clustering. In this context, we are interested in finding empirical answers to these (very old) questions, and to go beyond, to ask, â€Å"What manufacturing will locate where and why†? Industry location and concentration decisions are driven by two fundamental considerations: a set of â€Å"pure† location or â€Å"economic geography† criteria, including well recognized elements such as urbanization and localization economies, market access, infrastructure availability, etc. The other is a set of â€Å"practical† or â€Å"political economy† criteria, where the state is a key player in industrial ownership and production, and uses location considerations that are different from the private sector. The private sector responds to the very strong influence of state regulations, and the result is an industrial geography that is shaped by factors of economic geography and political economy. To understand the process of industrial location and concentration, it is important to first analyze the location decisions of firms in particular industries.