Relationship between urbanisation and economic growth: A causality analysis for India

The paper investigates the causal relationship between economic growth and urbanisation in India, utilising World Development Indicators (WDI) data over the period 1960?2013. The period is chosen according to availability of data. On the basis of modern econometric techniques, the dynamic causal relationship between economic growth and urbanization has been examined. At the first step each variable was tested for unit root. If the variables contain a unit root, the second step is to test whether there is a long run co-integration relationship between the variables. If a long-run relationship between the variables is found, then VECM Granger Causality Test is subsequently used to examine the direction of causality. The paper found urbanisation deficit in India, indicating level of urbanisation lesser than mandated by per capita GDP level. Our results for India indicated that economic growth had a positive causal effect on urbanisation, but urbanisation, in turn, does not have causal effect on economic growth.