RURDS Vol. 21, No.

2/3, July/November 2009

doi: 10.1111/j.1467-940X.2010.00164.x

GLOBALIZATION AND STAGES OF DEVELOPMENT:

AN EXPLORATORY ANALYSIS
Rashmi Umesh Arora
Department of Accounting, Finance and Economics, Griffith Business School, Griffith
University, Gold Coast, Australia

Globalization has different connotations for different social sciences and its social, economic and cultural impact have been examined by a number of studies. This study uses a
novel approach to apply Rostows stages of economic growth in the context of Indian states
and examines whether the states in India are ready for globalization. An important finding
of the study is that not only are the different states in India at different stages of growth, but
also in some states, features of different stages as set out by Rostow were found co-existing
at the same time. Foreign direct investment and other indicators are higher in states which
are at higher stages of development and vice versa.

1. Introduction
India and China are often projected in the literature as the major beneficiaries of globalization and are called as high globalizers (see Dollar and Kraay, 2001; World Bank, 2002).
However, are all the regions in these two countries able to harness the benefits of globalization?1
Are pockets of exclusion and marginalization taking place in these countries?
Within a country, the relevance of globalization can vary at the regional level as some
states or regions may benefit from globalization, others may remain excluded. The states or
regions could be at the different stages of development. McArthur and Sachs (2001) observed:
each countrys specific challenges posed by globalization depend importantly on its stage of
economic and technological development. A very poor country with rudimentary levels of
health and education will generally not be competing on the basis of technological innovation.
A large number of studies have examined the economic, social, political, cultural and ecological
consequences of globalization at the country and cross-country level,2 however, globalization
dynamics at the sub-national level remain largely unexplored. The existing literature on the effect
of liberalization at the sub-national or regional level in India has recognized that its impact is
not uniform throughout the country (Ahluwalia, 2002; Sachs et al., 2002; Bhattacharya and
1 In this study globalization refers to economic globalization that is, global exchange of finance, goods, people
and services This process of global exchange is also viewed as the disappearance of segmented markets and the
emergence of a single and uniform price.
2 Baddeley (2006), Bardhan (2006), Basu (2006), Freeman (2006), Goldberg and Pavcnik (2007), Lee (2006),
Mendez and Popkin (2004), Mishra and Topalova (2007), Newell et al. (2002), Nissan and Thorbecke (2006), Rondinella
(2006) and Stallings (2007) are some of the studies.


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Published by Blackwell Publishing Asia Pty Ltd.

Arora, Globalization and Stages of Development

125

Sakthivel, 2004; Purfield, 2006; Topalova, 2008). In this study, we argue that these outcomes,
although a culmination of overall national policies, actually reflect the different stages of
development within the country.
In cross-country studies, countries are occasionally grouped according to their stages of
development based on income, composition of total output, access to and adoption of technology, level of human development (for instance, McArthur and Sachs, 2001). The multilateral
organizations such as, World Bank classify the countries based on per capita gross national
income and level of industrialization.3 IMF divides the countries into many groups such as advanced economies; newly industrialized Asian economies; and emerging market and developing
countries. This classification of countries is based on income, source of export earnings fuel
and non-fuel, physical location and similar indicators.
Within a country, there are several possibilities of classifying sub-national units. They can
be grouped as developed or less developed based on per capita income; pace and directions of
the economic reforms at the state level,4 level of human development, and also infrastructure
development. This study attempts to group different states of India based on Rostows (1960)
theory of stages of economic growth. Although the states in India and elsewhere have been
classified on several of the criterion mentioned above, the author has not come across any study
so far which has used Rostows stages theory of economic growth in this manner.
Rostows theory, although set at the national level, is analytically rich and facilitates understanding of economic development from different perspectives. Such classifications can also
throw light on the different stages of development within a country and highlight its weaker aspects. For instance, a state identified under pre-takeoff stage with reference to several indicators
of economic development may need to invest more in those areas before taking-off. Applying
this theory, we show that since the states in India are at different stages of development, the
relevance of globalization has also varied across the states. The available evidence also shows
that usually adopted indicators of globalization such as, foreign direct investment (FDI) and
the development indicators such as, birth rate, fertility rate, infant mortality rate, dependency
ratio, adult female illiteracy rate and poverty level have all moved in reverse directions. The data
on different levels and aspects of development, however, needs to be interpreted with caution,
as although the different indicators may be correlated to each other, yet it may not necessarily
imply that they are causative in nature as the causality may lie elsewhere (see Acemoglu and
Johnson, 2007).
The contribution of this study to the existing literature is in two respects: it contributes to the
literature on regional studies by offering a fresh perspective on the complexity of development
issues at the sub-national level. The study also contributes to the current literature at a regional
level in India. This study using Rostows stages theory attempted to group the Indian states into
different stages of economic growth. Applying the multi-level stages theory of Rostow at the
sub-national level, the study is able to show that how economic integration or globalization at
the national level can differ substantially at the sub-national level. First, the paper revisits the
Rostows stage theory. Next, it contextualises Rostows stages theory of economic growth in
the Indian states and using foreign direct investment, bank credit and also e-readiness index as
3 World Bank acknowledges in its Reports that this classification of countries does not reflect the economic
development (as distinct from growth) of the countries.
4 In an Indian context, some studies have classified the states as fast reformers and slow reformers based on the
pace and directions of economic reforms.


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Arora, Globalization and Stages of Development

the measures of globalization at the sub-national level, it looks at their trends in the states.
Finally, the study concludes based on the findings.
Grouping the Indian states based on Rostows theory, however, does have limitations. The
limitations are: i) Rostows stages theory was published in 1960 (even earlier, as his thoughts on
organizing economic growth of the nations evolved)5 and the present study deals with the states
in contemporary India; ii) although Rostow made cursory references to regions and suggested
possibility of the applicability of his theory at the regional level, his theory dealt with the nations
overall;6 iii) he compressed his historical account of centuries in his theory of economic growth.
Rostows theory was much critiqued over his logic of dividing the growth of nations
into stages and his failure to explore fully the differentiation and disparities which occurs
within nations; assumption of uniformity across the nations; timing of different stages; and
identification of leading sectors (Hoselitz, 1960; Cairncross, 1961; Kuznets, 1963 and Itagaki,
1963 among others. Also see Parr, 2001 for more current discussion on the theory). Yet as
Supple (1984) pointed out despite criticisms Rostows precise commitment to the study of
economic growth in the way that he first made peculiarly his own blazed a trail which other
economic historians have failed to follow with equal assurance and purposefulness. Supple
(1984) further added:
It was one of Rostows great contributions to link such a viewpoint (that economic growth can be
seen as a potentially universal process) to the specifics of economic history, to suggest a range
of critical variables, to proffer a set of relationships between them which seemed to explain what
actually happened as the phases of material advance majestically unfolded themselves.

2. Rostows stages of economic growth

Rostow (1960) propounded stages of economic growth for all the countries based on
historical accounts, as he wrote in the opening lines of his book, The Stages of Economic
Growth: A Non-Communist Manifesto, This book presents an economic historians way of
generalizing the sweep of modern history. The form of this generalization is a set of stages-ofgrowth.
He divided the stages of economic growth into five categories: traditional society; preconditions for take-off; take-off stage; drive to maturity and age of mass consumption.7 Traditional
society, according to Rostow, is one whose structure is developed within limited production
functions, based on a pre-Newtonian science and technology, and on pre-Newtonian attitudes
towards the physical world. However, he cautioned:
the conception of traditional society is, however, in no sense static; and it would not include increases
in output. Acreage could be expanded; some ad hoc technical innovations, often highly productive
innovations, could be introduced in trade, industry and agriculture; productivity could rise with, for

5 Rostows views on the stages of economic growth appeared as early as 1952 when the first edition of his book
The Process of Economic Growth, New York, WW.Norton & Co. appeared.
6 Rostow in his later work (1978) did discuss regional take-off of New England (USA); Sao Paulo (Brazil),
Manchuria in China. The author is grateful to Prof. Parr for bringing this to her attention.
7 The beginning of take-off stage in India, according to Rostow (1960), was the launch of the First Five Year
Plan (1951-1956). He further suggested that it is sixty years after the beginning of take-off that maturity is attained.
Accordingly, India would achieve maturity by 20112016.


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Arora, Globalization and Stages of Development

127

example, the improvement of irrigation works or the discovery and diffusion of a new crop. But the
central fact about the traditional society was that a ceiling existed on the level of attainable output
per head.

Later in his book, Rostow (1960) stated that:

the second stage of growth embraces society in the process of transition; that is, the period when
the preconditions for take-off are developed; for it takes time to transform a traditional society in
the ways necessary for it to exploit the fruits of modern science, to fend off diminishing returns,
and thus to enjoy the blessings and choices opened up by the march of compound interest.

For take-off to take place, Rostow laid down three conditions:

1) a rise in the rate of productive investment from say, 5% or less to over 10% of national income (or
net national product (NNP); 2) the development of one or more substantial manufacturing sectors,
with a high rate of growth; 3) the existence or quick emergence of a political, social and institutional
framework which exploits the impulses to expansion in the modern sector and the potential external
economy effects of the take-off and gives to growth an on-going character.

Rostow defined the next stage, drive to maturity as:

in which an economy demonstrates the capacity to move beyond the original industries which
powered its take-off and to absorb and apply efficiently over a wide range of its resources if not
the whole range the most advanced fruits of (then) modern technology.

The stages so defined, according to Rostow, are determined by the interaction of demand
and supply conditions. Level of income; population characteristics and tastes determine the
demand; while the supply conditions are determined by the state of technology and quality of
entrepreneurship. Rostow (1960) cautioned that the sectoral structure of economies does not
occur in a vacuum; they are, in fact, a reflection of a succession of strategic choices made by
various societies. A summary of the different stages and features of each stage as outlined
by Rostow are presented in Table 1.
Can one apply Rostows national stages of economic growth at the regional/state level?
The idea of regions within a nation being at different stages of development (some regions
may be even higher than the nations stages) based on Rostows stages theory was suggested
by Parr (2001). Parr (2001) observed that despite scattered references to regions by Rostow,
his analysis of growth process remained focused on the nations as a whole. Furthermore, other
studies also failed to examine the applicability of the Rostows national growth theory at the
region alone level (Parr, 2001). This is what Parr (2001) attempted in his paper and examined the
applicability of stages theory at three levels: region alone; multi-regional perspective; and lastly,
inter-regional perspective. However, he observed that strictly at the regional level, Rostows
stages did not apply as the individual regions could be more open than the nation; each region
may have its own pattern of development; and the leading sector also may vary from region to
region. Acknowledging the difficulties in applying the stages theory at the region alone level in
the strict sense, he concluded that:
a regional economy is not a microcosm of the national economy, any more than the national economy
is a regional economy writ large. It is apparent that the more important determinants of regional
economic growth simply do not apply (or are of considerably less significance) at the national level,
while many of the forces influencing national development have no clear counterparts at the regional
level.


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Rate of effective
investment rises from 5
of GDP to 10 per cent

Investment is 10-20 per

cent of national income

Improvement in social
overhead capital

Investment

Lead sector continues

to develop

Continuous and steady

economic growth and
increase in output
higher than population
growth
Increased production
within the country and
reduced imports
Economy gets more
merged in international
economy
Extension of modern
technology

Drive to maturity

Agricultural workforce
20 per cent

Commercial agriculture
New industries expand
rapidly
Growth of a lead sector

Improvement in social
overhead capital

Technological push off

in agriculture
Occasional Emergence
of few new modern
enterprises;

Growth increases

The take-off

External invasion or
external factors lead to
desire to push growth

Pre-conditions
for take off

Employment

Little Investment

Absence or little presence

of science and
technology
Agriculture dominant

Technology

Sectoral Development

Little increase in output

Traditional society

Output

Major indicators

Table 1. Major features of Rostows stages of economic growth: a summary

(Continued)

Change in workforce
structure-increase in
services employment

Shift to durable consumer

goods and services

High and persistent

economic growth
Increase in per head real
income

Age of high mass

consumption

128
Arora, Globalization and Stages of Development


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Birth and Death Rates

Expenditure

Education

Urbanisation

High unproductive
expenditure such as
wars, social ceremonies
Death rate falls but high
birth rates continues

Decline in unproductive
expenditure

Landlords more important Emergence and

strengthening of
government
departments
Population mostly rural
Rural population
75 per cent or more
Increase in education

Political commitment
to economic growth

Old values still prevail

Pre-conditions
for take off

Families and clans more

important

Traditional society

Social Features

Major indicators

Table 1. Continued

Political interests
committed to economic
growth and
development
Increased urbanization
as industries develop

The take-off

Further urbanisation
takes place
Increase in educated and
literate persons,
increase in union
activities

Drive to maturity

Increase in proportion
of urban population

Increased social security

and welfare and
emergence of welfare
state

Age of high mass

consumption
Arora, Globalization and Stages of Development

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Arora, Globalization and Stages of Development

Even at the multi-regional level, Parr (2001) found limited applicability of Rostows stages
theory as regions cannot be aggregated and clubbed together into different stages, and also such
aggregation fails to reflect the relationship of each region with one another. It is largely (the
theory could be applicable to a particular regional economy sometimes) at the inter-regional
level, as Parr (2001) argued, that Rostows stages of growth theory is applicable.
3. Indian States and Rostows theory of economic growth
3.1 Economic profile of states
In India, there are altogether 28 states and 7 union territories. The latest addition to the list
of states are Jharkhand; Chattisgarh and Uttarakhand carved out of Bihar; Madhya Pradesh (MP)
and Uttar Pradesh (UP) respectively in 2001. The states are all very diverse from each other
in terms of natural resources, history, culture, language, food, costumes, festivals and lastly, in
their level of economic development. A brief socio-economic profile of the major states in India
is shown in Table 2.
3.2 Different stages of development in India?
We suggest that India is not just an emerging economy as classified by the multilateral
organizations;8 rather, it is comprised of clusters of development stages as the states are at
different stages of development with some emerging, while others not.9 In this study, we
classify the Indian states based on the stages of their development, similar to the stages as put
forward by Rostow (1960). Such grouping of states would assist in understanding analytically
the development level of the states, and also as subsequently shown in our study, the relevance
of globalization has differed across the Indian states based on their resource endowments, and
other factors- mainly agriculture; population mix- rural/urban; and size of population.10
Based on various indicators as shown in Table 2, our study proceeds to suggest that roughly,
states such as UP and Bihar have still not fully developed the conditions for take-off and,
therefore, can be grouped under stage II that is, pre-conditions for take-off stage. UP stands out
among all the states in terms of its contribution in countrys total output in absolute terms. Yet
this does not take into account the distribution of total output among its population, its growth
rate and the composition of output. If these factors are taken into account, the state moves into
the pre-takeoff stage. The opportunity for take-off came for UP with the introduction of high

8 The term emerging was coined by Antoine W. van Agtmael, International Finance Corporation in 1981. It
included initially countries in the East Asia and was later on extended to many other countries as well.
9 This idea comes out clear when one looks at the high growth rates being achieved by the Indian economy at large
and high disparities at the sub-national level.
10 Although not explored in our study, different political parties also may influence the pattern of distribution
of FDI or the trends in international migration. For instance, Chibber and Nooruddin (2004) demonstrated that the
states with two political parties perform better on the development front than the multi-party system. They showed that
political needs take preference over development needs in a multiparty scenario rather than in a two-party scenario as
the government is more responsive to the citizens needs in a two-party system. They argued that the performance of
state governments like UP and Bihar is lacking due to the existence of multi-parties in these states.


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79.2
89.5
66.1
85.0
66.0
71.1
73.5
74.1
76.6
62.6
56.0
57.6
72.0
72.7

30.4
30.4
18.1
22.3
20.6
24.3
29.4
15.0
28.6
23.7
16.5
19.0
18.8
19.1

56.3
47.0
69.7
63.1
66.6
67.9
63.7
90.9
60.4
69.1
73.5
76.9
68.6
60.5

58.2
51.3
100.0
55.2
98.1
100.0
96.3
100.0
63.9
98.7
94.9
86.5
84.8
99.8

4.3
5.2
4.4
5.1
7.7
6.4
4.5
6.0
7.0
7.5
5.2
5.8
7.1
6.7

8.4
2.5
3.2
2.2
5.3
3.0
3.6
4.1
4.0
6.5
6.9
13.0
7.3
7.2

49.0
53.0
46.2
48.5
59.2
50.1
51.7
73.5
53.8
47.5
62.8
63.5
60.6
56.2

28.5
18.8
57.4
30.3
40.2
46.1
24.5
73.6
31.2
46.4
45.3
42.4
48.5
33.1

65.9
77.3
38.9
64.8
55.7
51.3
71.5
22.8
65.9
51.6
49.3
55.0
44.1
62.2

32.4
40.0
37.0
26.0
18.5
27.9
29.2
14.4
26.1
16.7
13.3
11.1
22.1
24.2

7133
4013
19354
8580
15527
19323
9279
15401
11378
19899
16035
20397
12044
14672

22.9
17.4
39.5
30.2
57.8
28.1
28.3
41.5
30.4
27.0
65.6
114.9
30.1
41.0

Note: Except for the columns marked, data in rest of the columns relates to the year 2004-05. $Social Overhead Capital is defined as core infrastructure, largely transport
and power. According to Hirschman (1958) the criteria for identifying an activity as social overhead capital is: i) facilitates production; ii) mostly under public sector or
private with public sector; iii) pricing free or regulated; iv) imports of these services is not possible; and v) lumpiness in investments.

Uttar Pradesh
Bihar
Punjab
Orissa
Karnataka
Haryana
Madhya Pradesh
Kerala
Rajasthan
Gujarat
Tamilnadu
Maharashtra
West Bengal
Andhra Pradesh

States

Annual
average
Bank
Social
growth
credit/
Rural
overhead
rates
Contribution
Per
output
population
Birth
capital
in states
of states to Share of Employment Employment Share of
capita
ratio at
as % of
Rate (per
(Electrioutput
national
services in services
in
agriculture income
current
total
thousand Literacy fication of (1993-94
GDP in
in GDP
sector
agriculture
in GDP (2004-05) prices
population population)
rate
villages)$ to 2004-05)
2005-06
(2004-05)
(2001)
(2001)
(2004-05) (in Rs.) (2005-06)

Table 2. Socio-economic indicators of the major states in India (Shares and growth rate in per cent)

Arora, Globalization and Stages of Development

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Arora, Globalization and Stages of Development

Figure 1. Indicators of states in pre-takeoff stage.

100
90
80
70
60

Rural Population 75% and above

Birth Rate per thousand

% Villages Electrified

50
40
30
20
10
0
Bihar

Orissa

Uttar Pradesh

Rajasthan

yielding varieties of seeds (HYVs) and green revolution in the sixties.11 According to Rostow
(1960), the revolutionary changes in agricultural productivity are as essential condition for
successful take off. This did not, however, materialize in UP due to the lack of integration
within the state, and the success of green revolution in western region of the state failed to
spread to the rest of the state due to the absence of take-off conditions in other regions (Arora,
2007).12 The transformation in UP, which took place since the sixties, was concentrated only in
the western region and did not extend to the whole state leaving out other regions of the state,
particularly its eastern region.
The major features of the pre-takeoff stage, as outlined by Rostow, such as high birth rate,
more than 75 per cent rural population and low social overhead capital (electricity in villages)
in the context of some states is shown in Figure 1.
In some states such as Tamilnadu, Maharashtra and Kerala, the subsequent stages as outlined
by Rostow (1960) viz., takeoff stage and drive to maturity has come into being. This is reflected
in their continued progress in the various social and economic indicators. The heterogeneity in
the patterns of development across the states have been noticed by other studies too such as,
Kochhar et al. (2006) who observed that these states are more like developed countries and
their performance does not align with some other states of India. In the context of growth in
manufacturing and skills-intensive development across the states they argued:
some of the richer states have started to behave like rich countries in starting to specialize in
manufacturing even as, or because, they are doing less manufacturing and more services. But
these states are becoming less diversified not because they are reverting to the pattern followed
by less developed, labor-abundant countries (hence moving left and up the quadratic relationship

11 The high yielding varieties of seeds, mainly wheat and rice, were introduced in Punjab, Haryana and selected
districts of UP in its western region in the sixties.
12 This according to Parr could also be an outcome of the presence of an inappropriate regionalisation scheme
that is, when regions fail to develop as a consequence of the divergence between existing political unit (UP in this case)
and a functional economic unit. In such contexts, Rostows theory may not necessarily apply (Prof. Parr in a personal
communication). This indeed, appears to have occurred as Kudaisya (2006) explains that UPs sticky and strong image
as the political heartland of India failed to construct its regional identity and influenced significantly its social and
economic development.


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Arora, Globalization and Stages of Development

Figure 2. Some indicators of states in take-off stage.

Rates

Birth Rate

Literacy Rate

100
90
80
70
60
50
40
30
20
10
0

esh

Andhra Prad

Karnataka

West Bengal

Punjab

Tamilnadu

Maharashtra

Kerala

States

documented by Imbs and Wacziarg (2003) but more likely because they are behaving more like
advanced skill intensive countries (hence moving right and up the quadratic relationship).

The differences in birth rates, urbanization, dependency ratios, proportion of population

engaged in agricultural sector etc. in these states compared to others further highlights their
being in higher stages (Fig. 2).
The vast difference across the states in their stages of development is also reflected in their
per capita income. At the lower end are states such as UP and Bihar and at the upper end are
Maharashtra, Gujarat, Punjab, Haryana and Karnataka all with per capita incomes more than
double of that of UP and Bihar. UPs per capita income formed only 35 per cent and 37 per cent
of the per capita income of Maharashtra and Punjab respectively. The average annual growth
rate of UP in the post-reform period from 1994-95 to 2004-05 was lowest among all the states.
The differences in the stages of development are also reflected in the sectoral shares in the
economy. The services sector forms more than 60 per cent of state output in some developed
states such as Tamilnadu and Maharashtra, whereas in states like Bihar, agriculture constitutes
around 40 per cent of GDP. The employment pattern also differs markedly across the states. In
some states, the percentage of people employed in agriculture is above 60 per cent such as UP,
Orissa, Rajasthan and Andhra Pradesh and even more than 70 per cent in states like MP and
Bihar (in Rostows stages of growth, this occurs before take-off). On the other hand, in states
like Kerala, only 23 percent of the work force is engaged in agriculture.
Rostow (1960) stated, during take-off, the rate of effective investment and savings may rise
from, say 5 per cent of the national income to 10 per cent or more. The domestic investment
in India was 30.1 per cent of GDP in 2005-06 in real terms. This was around 11 per cent of
GDP in 1950-51. The data on gross domestic capital formation at the country level is available
in the national accounts. At the state level however, such figures are not available. To meet this
difficulty and to arrive at total investment at the state level, some studies use state government
plan expenditure (Ahluwalia, 2001) or credit provided by the financial institutions and industrial
investment proposals in the states as proxies for investment (Bhide and Shand, 2003). In our
study, this has been overcome by taking into account bank credit as an indicator of private
investment and state governments plan expenditure as an indicator of public investment. The

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Arora, Globalization and Stages of Development

Figure 3. (a) Bank credit/output ratio in Indian states (b) plan exp/output
ratio in states in India.
140

Ratio in per cent

120
100
80
60
40
20
0
Bihar

UP

Gujarat

Haryana

MP

WB

Orissa

Rajastha

Punjab

AP

Kerala

Karnatak

Maharash

du
Tamilna
tra

(a)

States
8

Ratio in per cent

7
6
5
4
3
2
1

(b) 0
Punjab

WB

tra

Maharash

Kerala

Haryana

d
Tamilna

Orissa

Bihar

Gujarat

UP

AP

Rajastha

MP

Karnatak

States

trend in bank credit across the states shows the spatial mobility and preferences of the domestic
capital and besides, long-term series data on credit given by the commercial banks is easily
available. Figure 3a shows that bank credit/output ratio is high in the states grouped under higher
stages of growth.
The state plan expenditure as a ratio of the state output ranges from 2.2 per cent in Punjab to
6.7 per cent in Madhya Pradesh and was more than 5.5 per cent in Rajasthan, Madhya Pradesh,
Andhra Pradesh and Karnataka (Fig. 3b). Thus, while private investment has clearly shown a
preference for high-income states, public investment has shown a mixed pattern.
In order to find out the underlying factors governing development patterns across the Indian
states, we conducted a Principal Component Analysis (PCA) on 13 variables with varimax
rotation. The Kaiser-Meyer-Olkin measure of sampling adequacy worked out to 0.48 (close to
0.5 per cent). Bartletts test of sphericity 2 (66) = 176.552, p < .001 indicated that correlations

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Arora, Globalization and Stages of Development

Table 3. Rotated component matrix

Component
Variables

Employment in Agriculture
Employment in services sector
Literacy Rate
Birth Rate
Share of services in GDP
Contribution of states to GDP
Bank credit/Output ratio
Share of Agriculture in GDP
Per capita income
Social Overhead capital
Rural Population as % of total population
Average growth rate in States output

0.896
0.880
0.862
0.773
0.738
0.889
0.885
0.651
0.576

0.849
0.769
0.732
.967

were large enough (Appendix 1) for conducting PCA (Field, 2009). An initial analysis was run
to obtain eigenvalues for each component in the data. Four components had eigenvalues over
Kaisers criterion of 1 and in combination explained 89.70 per cent of the variance. The scree
plot lists four factors and starts taking an elbow shape after the fourth factor. These were the
four factors which were finally retained in the analysis. Table 3 shows the rotated component
matrix using the extraction method of PCA.
The items that cluster in the components show that employment in different sectors and
health and social indicators: literacy rate (positive) and birth rate (negatively) are the major
factors in Component 1. Sectoral output ratios and bank credit were the second set of factors
which influenced the states stages of development. The other significant variables were per
capita income, states growth rate, and proportion of rural population. Based on above extracted
factors we placed Bihar, MP, Rajasthan and UP (also termed as BIMARU13 states) in the pretakeoff stage. On the other hand, as shown earlier, are some states which clearly fall into higher
stages of development such as Kerala, Tamilnadu, and Maharashtra.
3.3 Overlap in stages
Table 2 also showed that considerable overlap exists among the Indian states across the
different stages of growth as outlined by Rostow. For instance, while MP has a high birth rate and
can be classified under the pre-take off stage, yet its achievement in the social overhead capital
such as, electrification of villages is close to 100 per cent. Furthermore, it is difficult to classify
the states clearly under different stages as even the states with low birth rates, high growth rates
and high per capita income, have more than 50 per cent of their population still residing in the
rural areas. The high proportion of population in the rural areas may also reflect high skilled
intensive service sector growth in the urban areas which could result in fewer opportunities for
the rural population.
13 The term BIMARU coined by Bose (1988) is a play on the word sick in Hindi. It has become increasingly
popular in the narratives on these states.


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Arora, Globalization and Stages of Development

These findings of our study are not the same as the inter-regional or multi-regional perspective as suggested by Parr (2001), according to which different regions are at different stages
of development. Here it refers to coexistence of the features of different stages of economic
growth at the same time in a state. This could also be as Rostow in defining the criteria and
characteristic of each stage perhaps, generalized across the nations, developed and developing.
The criteria for reaching each stage will differ according to the country s history including its
colonial past, culture, technological developments, initial economic development and should be,
therefore, taken into account while identifying the stages. The initial economic development at
the time of countrys independence in 1947 was not similar across all the states, which reflects
in their crossing over different stages at different time. Also the coexistence of different stages
as identified by Rostow in the same state may reflect the regionalization scheme under which
the Indian states were organized. The States Reorganization Commission, 1956 organized many
states on linguistic lines which obscured their intra-regional differences. If the organization of
states was based more on functional realities reflecting their economic differences the possibility
of the coexistence of different stages perhaps, would be lesser.

3.4 Poverty and stages of growth

Even though, Rostow did not mention level of poverty as one of the criteria for progression into various stages of growth, several indicators in his growth theory such as, high rural
population, occasional emergence of enterprise in pre-take off stage, gradual emergence of commercial agriculture, increased urbanisation, and further reduction in the agricultural workforce to
20 percent in the maturity stage do suggest the progression in the gradual reduction in poverty.
Figure 4 shows that the Indian states which are in their early stages of economic development
(based on Rostows theory of growth) have high poverty levels and low per capita income.
However, the figure also shows that even the states in higher stages with much higher per capita
incomes also have high levels of poverty such as, Maharashtra. This reflects the inequalities

Poverty

50
45
40
35
30
25
20
15
10
5
0

Per capita income

25000
20000
15000
10000
5000
0
Punjab

Haryana

Kerala

Andhra Pra

Gujarat

Rajasthan

Tamilnadu

desh

l
West Benga

Karnataka

ra

Maharasht

UP

MP

Bihar

Orissa

states


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per capita income in Rs.

poverty

Figure 4. State poverty and per capita income.

Arora, Globalization and Stages of Development

137

in the distribution of income within the state.14 Perhaps this again reflects the regionalization
scheme in the country based on indicators other than economic. Nevertheless, in our context this
again shows the complexity of grouping the states in different stages clearly and accurately.
4. Globalization and stages of development
Is there any relationship between measures of globalization and states grouped into different
stages based on Rostows theory of growth? Besides foreign direct investment, trade openness
(ratio of exports and imports to GDP) is often considered as an indicator of globalization at
the national level (for instance Dollar and Kraay, 2001), at the sub-national level, however,
such data is not available. Therefore, we considered other possible indicators such as foreign
direct investment, bank credit (an indicator of domestic capital) and readiness of the states for
globalization or globalization readiness as state level measures of globalization.
The Government of India constructs an e-readiness index of the states covering 91 variables
taking into account environment, readiness and usage of information technology in the states.
It groups the states into six different levels of a pyramid and classifies them into: leaders (6);
aspiring leaders (5); expectants (4); average achievers (3); below average achievers (2), and least
achievers (1) (DIT, 2004). We term the e-readiness index of the states as globalization readiness.
The e-readiness index, in our opinion, reflects connectivity nationally and internationally and
comprises indicators such as internet usage, access to personal computers and also the policy
environment in the states. To obtain clarity and for a clearer understanding, we assigned numbers
to each group in descending order and the individual states based on the group they belonged
to, as per the DIT report, were placed.
The economic theory suggests that to maximize the returns, capital would flow in the
direction where returns are highest. Thus, in the states, which are in the highest group (leaders)
of the globalization readiness index, per capita bank credit is also highest (Figure 5). Of the
total foreign direct investment in the country during the period 1991-2007, Maharashtra received
the highest (25.9 per cent), Delhi (22.8 per cent) and Karnataka (7.1 per cent).15 The highest
foreign technology transfer approvals also were to Maharashtra (17.3 percent); Tamilnadu
(8.3 percent); Gujarat (7.7 percent), Haryana (4.5 percent) and Delhi (3.9 percent). Thus, the
states which rank high in the globalization readiness have witnessed higher capital flows.
Figure 6 also suggests that states which rank higher in globalization readiness, also perform
better in some of the social indicators such as their dependency ratio and infant mortality
rate.

14 Per capita income is a very crude indicator of a persons income. At the aggregate level, it does not reveal the
inequalities across the population. Two factors influence this indicator: i) total income; and ii) total population. Thus,
higher population would depress the per capita income even if the total income is high. Low total income coupled
with high population would also depress the per capita income. Though commonly adopted, per capita income is not
considered as a satisfactory indicator to measure the quality of life and well-being, and a host of other indicators are
used, more so since the nineties, to judge well-being (Dasgupta and Weale, 1992; Yoruk and Zaim, 2003; UNDP, 2005).
The search for an alternative indicator has even led to adopting per capita energy consumption in kilograms of coal as
the indicator of development (see Tsakloglou, 1990). Nevertheless, although per capita income is a crude indicator, as
it merely distributes the total output among the population, it is useful in comparing the relative performance of states,
regions and countries.
15 Industry wide, highest FDI was to the services sector (19.8 per cent); followed by computer technology including
hardware and software (15.6 per cent), and telecommunications (8.0 per cent).


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138

Arora, Globalization and Stages of Development

Figure 5. Ranking of states in globalization readiness index and per capita bank
credit.

Ranking in globalisation
index

0
1
2
3
4
5
6
7
0

50

100

150

200

250

300

Per capita bank credit (% of all India)

Figure 6. Globalization readiness index and infant mortality ratios and dependency ratios in states.
Dependency Ratios

Infant Mortality Ratio

120
100

Ratios

80
60
40
20
0
0

Ranking of states

5. Conclusion
The economic, social, political and cultural impact of globalization has been extensively
examined by a large number of studies at the national level. The impact and relevance of
globalization at the sub-national level, however, remains unexplored. This gap in the literature
could be due to a number of reasons such as lack of data at the sub-national level; absence
of standard measures of globalization at the sub-national level; and also because globalization
by definition, implies integration at the national or country level. This view, however, does not
consider that a nation is composed of different regions/states, which may be at varying levels of
economic development, and the impact of policies at the national level could vary from region
to region.
This study, using Rostows stages theory, attempted to group the Indian states into different
stages of economic growth. The grouping was done to achieve analytical clarity and understand
the level of development of the Indian states and to understand whether globalization, explored
and understood largely at the national level in the literature, has varied implications at the
regional level.

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Arora, Globalization and Stages of Development

139

Rostow suggested that the process of economic growth of nations can be understood in
terms of stages: traditional, pre-takeoff; take-off stage, drive to maturity and finally stage of
mass consumption. Our study attempted to place the Indian states into different stages based
on the indicators identified by Rostow as characteristic of each stage. States such as Madhya
Pradesh, Uttar Pradesh, Bihar and Orissa can be grouped under pre-takeoff stage. States such as
Tamilnadu, Maharashtra, Kerala, West Bengal, Punjab, Karnataka and Haryana can be placed
under the next stage, that is, take-off stage. However, our study found that not only are the
different states in India in different stages of growth, but also in some states, features of
different stages as set out by Rostow are found co-existing at the same time. This is reflected
for instance in Madhya Pradesh which has a high birth rate and can be placed in the pre-takeoff
stage, yet its achievements in social overhead capital such as electrification of villages was
found to be very high. This reflects lopsided development in some states and also inter-regional
and intra-regional disparities across the states. This also shows that the criteria as set out by
Rostow for having reached different stages was perhaps, too general across the developed and
developing countries.
The trends in foreign direct investment and globalization readiness (or e-readiness considered as a measure of globalization in our study at the state level) show that they are higher in
states which are at higher stages of development, and vice versa in other states. The available
evidence also shows that FDI and development indicators such as birth rate, fertility rate, infant
mortality rate, dependency ratio, adult female illiteracy rate and poverty level have all moved in
reverse directions. However, it needs to be reiterated that a correlation among these indicators
need not necessarily imply causation and the reason for superior outcomes may lie elsewhere.
Since the lack of adequate capital can be detrimental to the development of less developed
states (that is, states in the early stages of economic growth) and can hinder their efforts into
advancement to higher stages, a policy implication based on the studys findings is that strong
strategies are required to push the development and economic growth of these states to ensure
adequate capital flows.
Acknowledgements
This paper was a part of the project undertaken during the authors affiliation to the Centre
for Asia Pacific Transformation Studies (CAPSTRANS), University of Wollongong, Australia as
a postdoctoral research fellow. The tremendous support received from the Centre and Associate
Prof. Tim Scrase, Director, CAPSTRANS is gratefully acknowledged. I also wish to express
my gratitude to the late Prof. Jim Hagan, University of Wollongong and to Prof. John Parr,
University of Glasgow for their comments on the earlier drafts of this paper. In addition, I
thank the CAPSTRANS seminar participants for their helpful comments. I also wish to thank
anonymous referees for their useful comments. Finally, any errors are solely mine.
Final version received November 2009.
Send correspondence to Rashmi Umesh Arora: r.arora@griffith.edu.au
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.585
1.000
.778
.609
.227
.254
.599
.786
.805
.625
.642
.530

1.000
.585
.594
.725
.243

.572

.290
.489

.471
.684
.837
.698

Source: Authors computations.

Rural Pop (% of total)

Birth Rate
Literacy Rate
Social Overhead capital
States Growth rate
(1993-94 to 2004-05)
Contribution of states
to GDP (2005-06)
Share of Services in GDP
Employment in services
sector
Employment in agriculture
Share of agriculture in GDP
Per capita income
Bank credit/output at
current prices (2005-06)

Correlations

.285
.631
.612
.458
.787
.302

.876
.732
.668
.500

.138

.725
.609
.636
1.000
.305

.666
.888

.239

.594
.778
1.000
.636
.157

.188
.484
.370
.069

.246
.205

.138

.243
.227
.157
.305
1.000

.079
.565
.338
.711

.348
.069

1.000

.572
.254
.239
.138
.138

.524
.678
.175
.519

1.000
.506

.348

.290
.599
.666
.285
.246

.995
.478
.681
.247

.506
1.000

.069

.489
.786
.888
.631
.205

1.000
.471
.637
.230

.524
.995

.079

.471
.805
.876
.612
.188

.471
1.000
.561
.665

.678
.478

.565

.684
.625
.732
.458
.484

.637
.561
1.000
.545

.175
.681

.338

.837
.642
.668
.787
.370

.230
.665
.545
1.000

.519
.247

.711

.698
.530
.500
.302
.069

Growth
Bank
Rural
rates
Contribution
credit/
population
in states
of states to
output
as % of
Social
output
national
Share of Employment Employment Share of
Per
at current
total
Birth Literacy overhead (1993-94
GDP in
services in services
in
agriculture capita
prices
population rate
rate
capital to 2004-05)
2005-06
in GDP
sector
agriculture
in GDP income (2005-06)

Appendix 1: Correlations Matrix

142
Arora, Globalization and Stages of Development


C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010