Capital source and the location of industrial investment: a tale of Tdivergence from postreform India

The industrial locational decisions of private capital are expected to be profitmaximizing or efficiency-oriented, and directed towards leading industrial regions, coasts Aand metropolises, and away from socialist governments. Industrial investments by the Astate, on the other hand, are expected to consider equity and security issues, and therefore be less biased towards leading regions. Since the state as an agent of industrialization is weaker under liberalization, and private capital is increasingly dominant, structural reforms can be expected to lead to increased regional divergence. These propositions are tested using district-level data from the pre-reform and postreform periods in India using logistic and OLS regression models. The results provide unambiguous support for the outlined propositions and raise concerns about the political and welfare implications of these location decisions.