Step 1=> Get all the countries data in an array and all states data corresponding to country wise.

<?php
$countries_Array = array(
    'IN'    =>  'INDIA',
    'BG'    =>  'Belgium',  
    'AU'    =>  'Australia',        
    );
$states_array = array(
    'IN'    =>  array('UP' => 'Uttar Pradesh',
                        'DL'    =>  'Delhi',                        
                        'GU'    =>  'Gujrat'),
    'BG'    =>  array('FL'  =>  'Flanders',
                    'WL'    =>  'Wallonia',                                     
                    'BC'    =>  'Brussels-Capital'),    
    'AU'    =>  array('ACT' =>  'Australian Capital Territory',                                 
                    'TAS'   =>  'Tasmania',                 
                    'WA'    =>  'Western Australia')    
);
?> 

Step 2=> Create the Json of states array.

<script>
var _stateJosnData = {};
<?php if(!empty($states_array)):?>
        var _stateJosnData = <?php echo json_encode($states_array); ?>;
<?php endif; ?>
</script>

Step 3=> Create countries and states Drop-down.

<select class="form-control country-select" target="#states_ddl">
<option value="">-- Select Country --</option>
 <?php foreach($countries_Array as $k => $v): ?>
        <option value="<?php echo $k; ?>"><?php echo $v; ?></option>
<?php endforeach; ?>
</select>

<select class="form-control"  id="states_ddl">
<option value="">-- Select State --</option>
</select>

Step 4 => Jquery code for displaying states country-wise.

<script>
jQuery(document).ready(function() {

$(document).delegate('.country-select', 'change', function(e){
var source = $(this),
            val = $.trim(source.val()),
            target = source.attr('target');
            $(target).empty();
        if(typeof(_stateJosnData[val]) != "undefined"){
            var stateoptions = (typeof(_stateJosnData[val]) != "undefined") ? _stateJosnData[val] : {};
             $('<option>-- Select State --</option>').appendTo(target);
            $.each( stateoptions , function(value, index) {
                    $('<option value="' + value + '">' + index + '</option>').appendTo(target);
            });
        }

    });
    });
</script>