Capital Immobility and Regional Inequality: Evidence from India

by Siddharth Sharma

It shows that there are large regional differences in returns to factory investment, implying poor spatial capital mobility within India, which calls for financial markets reform. The author examines the role of capital constraints in the location of manufacturing investment across Indian districts, a question motivated by two observations: the persistent correlation between district wealth and investment, and heavy borrowing by firms in informal markets, which occurs in spite of an extensive bank branch network and an explicit policy mandate on lending to small firms.

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