ABSTRACT
The relationship between transport infrastructure, economic development and urbanization has long been discussed by planners and policy makers. However, it has been a matter of debate whether transport infrastructure promotes economic development and urbanization or economic development and urbanization promotes investment in transport infrastructure or there is a feedback effect. Each of these views has found theoretical support. Existing literature also shows that the relationship may vary from region to region and from time to time. The present study thus tries to find out the causal relationship between transport infrastructure, economic development and urbanization in India, both at the national and sub-national (regional) level, during the post-liberalization period. It has adopted dynamic time series analysis approach like unit root, cointegration and Granger causality test for this purpose. It has also used Vector Error Correction (VEC) and Vector Auto-Regression (VAR) models to distinguish between long-run and short-run causality. Moreover, to validate Hansen's hypothesis, the study classifies the Indian states into leading, intermediate and lagging categories, and then tries to find out the relationship separately for each region. To have a detailed and disaggregated understanding of the transport sector, eleven variables representing its various sub-sectors have been used. It has been found that in most of the cases it is economic development which caused development of transport infrastructure in the long-run. Transport infrastructure, on the other hand, helped boosting economy, though only in the short-run. Therefore, endogenous growth theory has been found to be more suitable in explaining the phenomena for short-run, whereas, Wagner’s law has been more suitable in the long-run for India. The positive effect of investment in transport infrastructure has been mainly observed for the lagging region, both in long and short-run.
Development of transport infrastructure was also not found to have significant influence on urbanization in the long-run. Although, support in favor of modernization theory has been obtained to some extent, but no evidence was found in support of urban bias theory; rather, it has been observed that urbanization has promoted urban bias in India. Also, dependency works mainly for the leading region, though in the short-run only.
Keywords: Transport Infrastructure, Economic Development, Urbanization, Cointegration, Granger Causality, Vector Error Correction, Vector Auto-Regression.
