Does Openness Affect Regional Inequality? A Case Study for India

Abstract

This paper examines the impact of economic liberalization on interregional inequality in India. It has been observed in many studies that interregional inequality in India has been steadily increasing over time. This paper is a further confirmation of this result. We have tried to locate the cause of rising interregional inequality within the production structure of the economy and observed that it is positively and systematically related to the cross-regional inequalities in agriculture and manufacturing. This systematic relationship has further been examined from a structuralist viewpoint to unravel the factors determining manufacturing production across regions where we have found that trade openness is the key factor determining the manufacturing share in income across the regions. Our further enquiry into manufacturing and trade patterns has shown that the Herfindahl index of concentration has been increasing over time on both counts. This result, along with the findings of the structuralist model about disproportionate growth of manufacturing across regions, provides an explanation of the cause of rising interregional inequality in India.