Trends in Public Financing of Human Development: Human Development's Effect upon Regional Inequalities: A Study from 1993 to 2007

Abstract

AbstractThe advent of globalization in India has led to an increase in regional disparities across India in the past 20 years. During this span of time, these regional inequalities have assumed themselves into a major problem for the development strategy of the country. The Convergence Hypothesis (Barro & Sala‐i‐Martin, 1991), based on neoclassical paradigms, emphasizes that when the growth rate of an economy accelerates, initially some regions with better stock of resources would grow faster than other regions, but after a period of time, on account of law of diminishing returns to capital, there will be a convergence of growth rates across different regions. But in the case of India, the results have been starkly different. Policymakers and academicians have suggested that one of the most effective ways of reducing these inequalities has been increasing the growth of social infrastructure across all states in the country. The paper tries to establish the relationship between the financing of human development by different state governments and its impact upon regional inequalities. The results suggest that the increase in public expenditure on education and health endowments in the country definitely have a significant impact upon the regional inequalities, but with a larger lag of at least 10 years.