Evaluating economic and administrative linkages in determining firms’ location choice in Hajipur (Bihar)

Bihar is one of the poorest states in India with over 100 million population of which about 90% live in rural areas. However, in last eight years, the State GDP has witnessed impressive growth rate of above 10%, largely led by the service sector and a construction boom. Contribution of manufacturing sector is at best dismal despite Bihar governments steps to create positive environment for industries. While state capital Patna and some adjoining urban centres have bene tted from the policy push, private investment in manufacturing has been lacking. Hajipur, a town in Vaishali district is one of the few exceptions where private investment has taken place in recent years. Hajipurs ability to attract new firms in the state is very encouraging given statewide low level of private investment in industries. Despite the clear pattern of firms’ geographical concentration in Hajipur, there is no study to investigate the mechanisms about industrial location choice in Hajipur and how it enables such firms’ geographical concentration.

The purpose of this project is to understand the rationales of firms’ location choice in which complex decision making mechanisms are manifested by various factors. This project attempts to understand increase in the number of rms by examining the location choice of rms based on a case study of Hajipur, particularly in the context of economic and administrative linkages to Patna. The main hypothesis is that good governance, in the form of effective economic and administrative linkages are a significant factor in determining firms location and expansion.

This project aims to look at nonconventional factors such as local taxes, agglomeration benefits, education, and physical infrastructure that determine firms location choice, over and above access to market, cheap labour and raw materials that are traditionally targeted by policymakers.

This will address the larger question of constraints to growth faced by towns in other regions by identifying the role of trade linkages of Hajipur with Patna as well as other regions in Bihar. The role and extent of administrative linkages will be focused on to study, in detail, whether tax incentives accorded by the government and known to incentivize firms to locate in small cities in developing countries, can work in Bihar.

The study will also attempt to analyse governments role in determination of firms’ location choice. Evaluation of policies in place to encourage expansion of firms will be done in consultation with both policy makers and firm owners. By identifying determinants of firms expansion and role of government incentives, the aim will be to come up with recommendations for evidence based policy making.

The study will aim to fill this gap by carrying out a survey of firms, started between 1990 and 2013. A purposive sampling technique will be used to identify different types of firms that are established in Hajipur. The aim is to cover about 150 to 200 enterprises of various types to ensure that robust analyses can be carried out with the data collected.

The different topics covered in the questionnaire will be: (1) the location preferences includes bene ts of industrial cluster’s proximity, accessibility to infrastructure, poverty, crime, education, land prices, and housing prices, (2) governance of Patna metropolitan region regarding Patna’s tax incentives, financial support from local governments, and inter-jurisdictional governance, and (3) challenges of the trade and administrative linkages.

The objectives of this study falls into the following different but interrelated elements: (1) to identify trade and administrative linkages in Hajipur, (2) to identify bottlenecks for economic development in Hajipur, (3) to develop ideas to create efficiency of economic development by Patna city government, (4) to study negative externalities and approaches to internalize them into the city structure, and (5) to study aspects that can create e ciency promoting agglomeration economies in Patna metropolitan areas.