UC Irvine

This dissertation comprises of three chapters that seek to understand the role of economic and political institutions, government policies such as trade liberalization, proximity to administration centers, and political accountability in influencing economic development and growth within developing countries, with India as a leading example. The first chapter, entitled “Impact of Colonial Institutions on Economic Growth and Development in India: Evidence from Night Lights Data”, examines the implications of two historical institutions – direct British rule and land tenure institutions adopted by the British – on the disparity in present-day economic development and growth using district-level data from India. Using nighttime lights per capita as a proxy for district-level per capita income, we find that modern districts that were historically under direct British rule, had significantly lower nighttime lights per capita in 1993 relative to modern districts that were historically under indirect British rule. The large gap persists even after controlling for correlates of development such as educational attainment, health, physical and financial infrastructure, and female labor force participation rate. Looking at the growth pattern between 1993 and 2013, directly ruled districts had a lower annual growth rate compared to indirectly ruled districts. Much of the development gap between areas under direct and indirect rule can be accounted for by the adverse effect of the landlord-based revenue collection system in the directly ruled areas. Weaker government effectiveness as proxied by lower voter turnout and lower newspaper readership, and perceptions of less trust and greater conflict at the local levels are some of the deeper mechanisms through which landlord-based revenue systems still adversely affect development. The second chapter, entitled “Sub-National Institutions and Local Economic Growth and Development: Evidence from India”, examines the impact of a contemporary political institution, specifically the State, on local economic growth and development in India. The study exploits the creation of the State of Chhattisgarh (CH) from the erstwhile State of Madhya Pradesh (MP) and compares neighboring villages on either side of the newly formed CH-MP State-border before the split, when they were governed by the same State administration, and after the split, when they were subject to different formal governing institutions. Using the difference-in-discontinuities design, this study documents a significant causal impact of State-level governing institutions on local economic growth and development. Being subject to a new State-level governing institution had a large positive economic impact for CH villages near the border relative to their counterparts across the border. I find that greater quality and efficacy of governance by CH, including the effective implementation of industrial policies, enhanced delivery of public goods, and higher State capacity, plays an important role in driving the main results. Furthermore, I present evidence that emphasizes the role of closer proximity to the State capital (administration center) and an increased sense of accountability among local elected leaders in explaining the better overall governance by CH administration. The third chapter, entitled “Trade Liberalization and Local Development in India: Evidence from Nighttime Lights”, investigates the impact of the Indian trade liberalization of 1991 on development at the district level using satellite nighttime lights per capita as a proxy for development. We find that the districts experiencing larger decreases in tariffs (larger trade liberalization) had larger increases in nighttime lights per capita. We also uncover considerable heterogeneity in the average effect of trade liberalization on development. In particular, districts in states with flexible labor laws, districts with better road infrastructure, closer proximity to the coast, and higher female labor force participation rate benefitted more from trade liberalization.