Why was India able to beat Britain at jute but not cotton textile manufacturing?

Working paper

This paper undertakes a detailed productivity and competitiveness comparison for the cotton and jute textile industries in Britain and India for the period 1860-1940 to examine why India was only able to beat Britain decisively in jute but not cotton. I collect data on factor costs over the period, and examine differences in capital productivity rates. I assess the extent to which manning ratios differed between the two countries for the two industries and whether they changed over time. I then construct implied unit cost ratios, with and without allowing for capital-labour substitution, and use these to infer productivity differences. As the UK had far higher wages but only marginally lower capital costs for the vast majority of the period, India should have had an absolute cost advantage in both industries, even at British factor proportions, that could only have been increased by capital-labour substitution. This implies some missing (labour) productivity residual in the UK’s favour. I examine an old and hotly debated hypothesis that differences in labour intensity per worker (assuming manning ratios reflected this) explain this productivity gap, while explicitly allowing capital-labour substitution. Observed differences in manning ratios quantitatively explain the majority of the required productivity gap for cotton, but not jute, throughout the period, and my implied potential increases in profits for Indian firms that reduced manning rates are large and persistent enough to rule out managerial failures (the alternative hypothesis in the literature) as their cause. Such labour intensity differences per worker between the UK and India, relative to the wage ratio, were smaller for jute than for cotton, which explains why India was relatively successful in that industry, and Britain in the other.

Authors: Nagar, A

• Publication status: Published
• Publisher: University of Oxford
• Series: Oxford Economic and Social History Working Papers
• Place of publication: Oxford
• Publication date: 2025-12-31
• Paper number: 226
• Language: English