Content area
Full Text
(ProQuest: ... denotes non-US-ASCII text omitted.)
Articles
The Indian economy experienced low productivity growth for much of the late nineteenth and twentieth century up to independence in 1947. Between 1890 and 1910 total factor productivity grew by only 0.4 percent per year as estimated by Stephen Broadberry and Bishnupriya Gupta (2010). Agriculture was the main culprit because it accounted for more than 70 percent of the economy. But, even modern sectors such as cotton textiles had low productivity compared to industrial countries such as the United States and Britain (Clark 1988; Clark and Wolcott 1999; Gupta 2011). Such poor productivity estimates match the disappointing income performance of the Indian economy in the colonial period (Madisson 2003; Roy 2010). Even in the decades before World War I when the economy performed better than in periods before or after, income per capita increased by only 0.6 percent per year from 1870 to 1913. Was poor productivity a hallmark of the colonial Indian economy?
Our article revisits this question of Indian productivity by focusing on railways, the key infrastructure investment made by the British Raj. An important modern sector of the colonial economy, railways employed 0.32 percent of total workers, 1.1 percent of nonagricultural workers, and accounted for 3 percent of GDP by 1911.1While economists find large social savings from railways, historians remain skeptical arguing that railways were developed to benefit colonial interests and did not lead to rapid economic growth.2Both sides of the literature are largely silent on the issue of productivity. The omission is important because if railways somehow failed the Indian economy, then low productivity could be a key reason. Indeed from the 1970s until the 2000s, low productivity has been identified as one of the problems for Indian railways (Alivelu 2010).
We shed new light on this debate by estimating total factor productivity (TFP) for Indian railways and by assessing its contribution to national income growth from 1874 to 1912. We use detailed railway system-level data drawn from official reports. Our sample includes the principal standard and meter gauge railway systems, and accounts for 95 percent of total output. Traditional approaches to estimating TFP often suffer from endogeneity problems because unobserved productivity shocks may be correlated with input choices....