Globalisation and regional income growth disparity in India and the People’s Republic of China (PRC)

Abstract

Purpose This study aims to explain the role of globalisation on the regional income growth disparities in the states of India and provinces in the People’s Republic of China (PRC). Design/methodology/approach The authors use two approaches to analyse regional growth disparities: growth accounting and the panel spatial Durbin model. Findings The growth accounting shows that contributions of growth of capital intensity (GKI) and total factor productivity growth (TFPG) distinguish the high-income (HI) regions from medium-income (MI) and lower-income (LI) regions in India. In the PRC, the contributions of GKI and TFPG in MI regions are slightly higher than HI regions, but significantly higher than the LI regions. The empirical results find that foreign direct investment (FDI), domestic investment, human capital, and interaction of FDI and human capital explain income growth states/provinces in India and the PRC. A region’s income growth and FDI inflows spread the benefit to neighbourhoods in both countries. Originality/value The paper contributes by performing a comparative analysis of Indian states and the PRC’s provinces by capturing the neighbourhood effects of economic growth, FDI, investment and human capital and also the interaction effects of FDI with human capital and domestic investment. A comparison of the decomposition of income growth to the growth of factor inputs and efficiency in Indian states and the PRC’s provinces also adds to the existing literature.