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Discrimination or Social Networks? Industrial Investment in Colonial India

Published online by Cambridge University Press:  24 February 2014

Bishnupriya Gupta
Bishnupriya Gupta*
Affiliation:
Associate Professor, Department of Economics, University of Warwick, Coventry, CV4 7AL, United Kingdom. E-mail: [email protected].
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Abstract

Industrial investment in colonial India was segregated by the export industries, such as tea and jute that relied on British firms and the import substituting cotton textile industry that was dominated by Indian firms. Empirical evidence in this article does not suggest that barriers to entry faced by Indian entrepreneurs created this separation. Informational asymmetry played an important role. British entrepreneurs knew the export markets and the Indian entrepreneurs were familiar with local markets. Conditional on the initial advantage in entry, social network effects determined subsequent entry of firms by ethnicity and created separate spheres of industrial investment.

Type
Articles
Information
The Journal of Economic History , Volume 74 , Issue 1 , March 2014 , pp. 141 - 168
Copyright
Copyright © The Economic History Association 2014 

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Footnotes

My debt is to V. Bhaskar and Debraj Ray for discussions to formalize the arguments in the article. I thank Wiji Arulampalam, Sascha Becker, Nick Crafts, two anonymous referees, and the editor, Jean-Laurent Rosenthal, for helpful suggestions and the participants at All-UC Economic History Meeting at Caltech, ESTER Research Design Course at Evora, and the Economic History Workshop at Warwick for comments. I am grateful to the Economic and Social Research Council, UK for support under research grant R000239492. The errors are mine alone.

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