Question

Mention at least six factors which you believe binded Indian people during the colonial era. Do you think these factors are stil prevalent ?

Answer 1

The paper presents a model to discover the factors affecting the colonial industrialization, and to explain the empirical finding of the ‘reversal of fortune’ of Acemoglu et al. [Q. J. Econ. 117 (2002) 1231], based on an extended version of the ‘endowment theory’. Reversal of fortune implies that countries among the former European colonies that were less urbanized (relatively poor) in 1500 should be relatively rich today. The model is based on the Krugman’s geography model. We additionally assume that technology transfers including establishment of institutions are possible only through the settlement of economic agents from metro to colony. The model yields the following implications. First, various legal systems differing in the level of the rule of law do not affect the metro agent’s decision of settlement or extraction. Second, the less urbanized is the colony, the more likely metro farmers migrate into the colony, transferring metro technologies and institutions. This is consistent with the ‘reversal of fortune’. Third, the more likely the colony will experience metro agents’ migration (technology transfers) and the subsequent colonial industrialization with its lower mortality rate, with its higher availability of arable land, or with its smaller distance from the metro. Last, if the distance is large enough, it leads to a different equilibrium where subsidiaries of metro firms in the colony produce and supply all kinds of the manufactures goods to the colony in a self-sufficient fashion. Then, only the mortality rate and the availability of arable land matter, while the distance does not. This is more consistent with the case of former European colonies such as US, Canada, Australia, and others.