Trade disruption, industrialisation, and the setting sun of British colonial rule in India

Colonial trade policies encouraged trade between the colonial power and the colonies, resulting in a pattern of specialisation whereby the colonies exported mainly primary prod- ucts. Did this specialisation limit industrial growth in the colonies, and did it help the colonial powers to keep the colonies under control? We address these questions empirically, by studying the impact of the temporary collapse in trade due to World War I on industrial- isation and anti-imperial feelings in colonial India. We exploit cross-Indian-district variation in exposure to the trade shock, stemming from initial (1911) differences in industry special- isation. We find that districts more exposed to the trade shock experienced substantially faster industrial growth during and in the immediate aftermath of the shock, placing them on a higher level of industrialisation which is still visible in the most recent census (2011). This supports the existence of the kind of learning externalities postulated by the infant industry argument. The impact of the trade shock was entirely due to an increase in the number of Indian-born (as opposed to British-born) administrative staff and workers, and in the number of Indian-owned (as opposed to British-owned) firms. We also find that, in districts more exposed to the trade shock, members of the Indian National Congress (INC) expressed stronger anti-empire feelings by 1922. Moreover, these districts were more likely to vote for the INC in the landmark election of 1937. These results suggest that colonial trade may have played an important role in preventing colonial industrialisation, and in embedding foreign rule.

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