Indias Deindustrialization

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India’s Deindustrialization in the 18th and 19th Centuries by

David Clingingsmith Jeffrey G. Williamson Harvard University

August 2005

We are grateful for advice and criticism from Leah Platt Boustan, Greg Clark, Ron Findlay, Bishnupriya Gupta, Peter Harnetty, Debin Ma, Patrick O’Brien, Kevin O’Rourke, Şevket Pamuk, Leandro Prados, Ananth Seshadri, T. N. Srinivasan, Tirthanker Roy, Tony Venables, and participants in the Harvard Economic History Tea, the 5th World Cliometrics Conference (Venice: June 2004), and the Stockholm School of Economics (Stockholm: October 2004). We also thank Javier Cuenca Esteban and Bishnupriya Gupta for sharing their data. Clingingsmith acknowledges support from the Project on Justice, Welfare, and Economics at Harvard University. Williamson acknowledges support from the National Science Foundation SES-0001362, and the productive work environment in the University of Wisconsin–Madison Economics Department, where he was on leave from Harvard when much of this paper was written.

Abstract India was a major player in the world export market for textiles in the early 18th century, but by the middle of the 19th century it had lost all of its export market and much of its domestic market. India underwent secular deindustrialization as a consequence. While India produced about 25 percent of world industrial output in 1750, this figure had fallen to only 2 percent by 1900. We ask how much of India’s deindustrialization was due to local supply-side influences, such as the political and economic fragmentation of the 18th century, and how much to world price shocks. We use an open, three-sector model to organize our thinking about the relative role played by domestic and foreign forces. A newly compiled database of relative price evidence is central to our analysis. We document trends in the ratio of export to import prices (the external terms of trade) from 1800 to 1913, and that of tradable to non-tradable goods and own-wages in the tradable sectors back to 1765. Whether the deindustrialization shocks and responses were big or small is then assessed by comparisons of the Indian experience with other parts of the periphery. David Clingingsmith Department of Economics Harvard University Cambridge MA 02138 clinging@fas.harvard.edu JEL No. F1, N7, O2 Jeffrey G. Williamson Department of Economics Harvard University Cambridge MA 02138 and CEPR and NBER jwilliam@fas.harvard.edu

1. Introduction The idea that India suffered deindustrialization during the 19th century has a long pedigree. The image of skilled weavers thrown back on the soil was a powerful metaphor for the economic stagnation Indian nationalists believed was brought on by British rule. However, whether and why deindustrialization actually happened in India remains open to debate. Quantitative evidence on the overall level of economic activity in 18th and 19th century India is scant, let alone evidence on its breakdown between agriculture, industry, and services. Most of the existing assessments of deindustrialization rely on very sparse data on employment and output shares. Data on prices are much more plentiful, and this paper offers a new (price dual) assessment of deindustrialization in 18th and 19th century India supported by newly compiled evidence on relative prices. A simple model of deindustrialization links relative prices to employment shares. We think the paper sheds new light on whether and when deindustrialization happened, whether it was more or less dramatic in India than elsewhere, and what its likely causes were. The existing literature primarily attributes India’s deindustrialization to Britain’s productivity gains in textile manufacture and to the world transport revolution. Improved British productivity, first in cottage production and then in factory goods, led to declining world textile prices, making production in India increasingly uneconomic (Roy 2002). These forces were reinforced by declining sea freight...
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