Description:
We examine the impact of legislated land ceiling size on capital investment and industrialisation in the Indian states. We argue that India’s land ceiling legislations of 1960s and 1970s, effectively implemented or not, had increased land fragmentation and transactions costs of land acquisition for industries. We build a general equilibrium framework that captures the idea that lack of availability of land constrains industrial development, with an increase in transaction costs adding to such constraints and derive two testable hypotheses: states with smaller ceiling size are likely to have (i) lower capital investment and (ii) lower pace of industrialisation. Using state-level data from major Indian states, we find confirmation of both hypotheses, considering both relative (pre/post 1971) and aggregate effects of legislated ceiling size, ceteris paribus. We document that there is confirmation of greater land fragmentation and higher transaction costs of land acquisition in states with lower ceiling size