Key Determinants of Urbanization in India: Evidence from State-Level Data

Urbanization and economic growth are closely related. Previous studies have revealed that there is a positive impact of economic growth on urbanization. As nations embark on the path of development, migration from rural habitats to urban centres in search of better livelihood opportunities and better incomes among other things is a key feature of structural changes. Workers’ movement not only lifts their income and living standard but also thrusts them into the ‘consuming class’. As higher purchasing power puts them in a better position to consume more, this huge consuming class adds fuel to the engine of industrialization and urbanization. Economic growth, of course, is very critical to urban growth, but studies focusing on certain other variables which on a priori can be expected to influence urbanization rate are very less in number. Our country-specific diverse data approach to understand and analyse the correspondence between urbanization rate and level of economic growth controlling for some other variables (as important determinants of urbanization rate) demarcates (constitutes) a clear-cut departure from the often done micro-level or country-level studies using panel data approach for identifying the determinants of agglomeration economies. The objective of the present paper is to ascertain the key determinants of urbanization in India. Taking cross-section data of 28 states and two Union Territories (UTs) of India for which data was available in case of all the variables and making use of multiple regression technique and ordinary least squares test procedure, we find evidence that economic growth, industrialization and infrastructure are the three key determinants of urbanization rate in case of India.