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Chapter 24: New Regional Policies for Less Developed Areas: The Case of India
24 New regional policies for less developed areas: the case of India Maria Abreu and Maria Savona 24.1 Introduction Regional disparities in growth and income levels present an important challenge for policy-makers in less developed countries, particularly in the context of increasing globalisation (World Bank, 2006). Globalisation heightens regional income disparities since wealthier regions typically have an infrastructure and skills advantage which, on top of wage diﬀerentials and less stringent environmental regulation, enables them to attract further domestic and foreign investment. A large number of recent empirical contributions have analysed the extent to which developing countries are able to beneﬁt from trade liberalisation and other economic reform policies. However, only a few of these contributions are devoted to the impact of these policies on regional income disparities.1 This chapter reviews the empirical literature on regional policies in less developed countries, with an illustration based on the case of India. Our review shows that regional policies can complement or counteract the eﬀects of national policies, with the eﬀectiveness of speciﬁc regional policies depending on the degree of decentralisation of the policymaking process, the extent of sectoral specialisation across regions and the degree of regional variation in initial endowments in physical and social infrastructure. We analyse this issue further in the context of regional policies pursued by the state governments of India over the period 1988–2001. India implemented national trade liberalisation policies starting in 1991, as part of a wider economic liberalisation strategy. Under the federal...
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