Three Essays On India’s Economic Development Under The British Raj

Abstract

“Why isn’t the whole world developed?” is a vital question posed by Richard A. Easterlin in regard to the divergent patterns of growth and development across nations. While addressing the causes of economic underdevelopment economists have acknowledged the concept of ‘path dependency theory’ which signifies that `history and institutions matters'. My research contributes to this consensus with reference to the history of India. British has colonized India for almost two centuries whose institutions and policies have played an influential role in shaping the Indian economy. In my dissertation, I study three significant episodes of Indian economic history during the British colonial rule that are pivotal in determining the growth trajectory of the economy. These studies have necessitated collection of archived data related to British India, digitizing, and compiling them. A happy byproduct of this intense data collection effort is that it enables me to address micro-level questions covering various aspects of Colonial India.

The British colonial policy of free trade and laissez-faire approach is one of the factors blamed for sluggish industrialization in India. Following the World War, I the changing political and fiscal dynamics catalyzed India's attainment of fiscal autonomy and implementation of a temporary trade protection policy. I use the variation in protection intensity across industries to estimate the causal effect of this policy on the long-term performance of the Indian manufacturing industries. I find that the highly protected industries experienced significant expansion in value of output, capital acquisitions, employment, value added, and number of establishments. Industries that received greater protection also exhibited higher capital and labor productivity. The findings suggest that the British colonial free trade policy did hinder industrial growth in India. The results have important implications for the infant-industry debate and how colonial policies have shaped India's development.

Second, I study a historical episode of technology adoption in the Indian cotton textile industry during the early 20th century. Using an establishment level dataset, I analyze the transition of the cotton mills from using mule to ring spinning technology. I first characterize the distribution of the establishment-level mule share and the factors that affect the distribution. Next, I examine the role of intensive and the extensive margin of establishment entry and exit in driving the changes in the distribution of mule share. I find that surviving mills adopted ring gradually and accounted for 69\% of the overall change in mule shares. Changes in mule share have been significantly low over the years for mills having high spindleage relative to the small sized mills. Lower depreciation rate of the machines due to their longer lifespan and high initial investments of ring were important determinants for such lower changes in mule share for these mills. I also find that unlike entry, the exit margin played a significant role in the diffusion process by reducing the dispersion in the distribution of mule share.

Third, using the spatial variation in the intensity of a mortality shock during 1900, I estimate its effect on population dynamics post the shock. According to the Malthusian theory, a sudden decline in the population due to a mortality shock would result in increased income per-capita from higher land-labor ratios which leads to higher fertility rates and lower death rates. Consistent with this mechanism, I find that the high mortality districts during the epidemic shock have higher birth rates in the period after the shock relative to the low mortality districts. Death rates declined as the shock subsided, but the differential effects on death rates across high and low mortality districts are very small. I find that the birth margin played a more important role in the population recovery.