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Prof. Dean Yang

University of Michigan, United States

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Authors: Dean Yang and Aneesha Parvathaneni

Abstract: Can temporary wartime mobilization change the long-run development trajectory of an economy? We study how mobilization for World War II in colonial India influenced its subsequent long-run economic development. From 1939 to 1945, the British colonial government purchased massive amounts of war materiel within India. We study long-run impacts on Indian structural transformation – the transition of employment from agriculture to the modern sectors (industry and services) – in Indian districts. Causal identification takes a shift-share approach, exploiting variation across industries in war-related government orders, and variation across districts in their pre-war industrial structure. We find that World War II economic mobilization (procurement of war materiel) had a positive and significant impact on long-run structural transformation in Indian districts. More than six decades later, Indian districts that experienced higher procurement of World War II materiel experienced higher structural transformation from agriculture towards industry and services. We find substantial spillovers on services sectors that were not directly subject to World-War-II-related procurement. The majority of structural transformation
effects are driven by procurement of heavy industrial goods.

JEL Classification: H56, N15, N45, O14, O25
Keywords: industrial policy, growth, structural transformation, war mobilization, India

Full Text: War Mobilization and Economic Development: World War II and Structural Transformation in India