Economy demand factor in regional industrialization

Abstract

In the present study it is argued that policies to achieve reduction in regional inequalities in industrialization in India so far have been guided by theories emphasizing the role of supplies of factors of production, particularly capital stock. This has resulted in only increasing the incremental capital-output ratios rather than achieving the desired reduction in the regional inequalities. The present study advocates policies based on theory emphasizing the role of national demand factors. It discusses critically the earlier studies attempting to test the role of demand factors in determining the extent of regional industrialization and suggests a more acceptable specification of the model for testing the hypothesis. State is taken as the regional unit and time series data on SDP are used for empirically testing the hypothesis. Indian regional data seem to support the hypothesis of national demand factor playing a major role in determining the extent of regional industrialization.