The Rise of an Enclave Economy

Development theories of dual economy emphasize interactions between the modern sector and the traditional sector through factor and commodity market linkages for long run growth of the economy. Within this paradigm of development this paper tries to explain why substantial investments in a modern sector in Assam during the later half of the nineteenth century failed to trigger off a process of sustained growth that encompasses the agriculture-based traditional sector. On the basis of the available historical evidences – both statistical and anecdotal – it establishes that on the eve of the British colonization Assam was a labor-short, barter economy having limited trade links with the rest of the world. After the British established their rule substantial investments took place in a modern sector that consisted mainly of tea plantation. However these investments could not establish any link between the modern and the traditional sector through important linkage effects in capital, labor and commodity markets. With these missing links the dual economy that emerged, instead of projecting the economy in a path of long run growth, gave rise to an economic enclave that remained backward for years to come. 1 I would like to thank Alokesh Barua for suggesting the topic and giving insights. I also thank Indro Dasgupta for his useful comments. However I am alone responsible for the views expressed in this paper. 2 Department of Economics, Southern Methodist University, Dallas, TX 75275-0496. E-mail : [email protected]