Factor markets and resource allocation in colonial Punjab

It is often argued that agricultural factor markets in colonial India were underdeveloped, leading to inefficient resource use and slow agricultural development. However, there is little econometric evidence on these issues. This article outlines a model which incorporates the factor market imperfections discussed in the literature and tests the model against data from the Punjab. There is, in the statistical sense, evidence of resource misallocation; however, these effects are too small to be of much economic significance.