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The Ceylon (Sri Lanka) Economy, 1920 to 1938: A National Accounts Study

Author(s):Salgado, M.R.P.
Reviewer(s):van der Eng, Pierre

Published by EH.Net (April 2013)

M.R.P. Salgado, The Ceylon (Sri Lanka) Economy, 1920 to 1938: A National Accounts Study. Colombo: Social Scientists? Association, 2011. xvi + 323 pp. US$20 (paperback), ISBN: 978-955-1772-99-4.

Reviewed for EH.Net by Pierre van der Eng, Department of Economics, Australian National University

Compared to other Asian countries, Sri Lanka has an abundance of historical economic statistics, particularly since 1802 when Ceylon (as the country was known until 1972) came under British control. For taxation purposes, Ceylon?s British administrators intensified and improved the collection of statistical data throughout the nineteenth and early-twentieth centuries. Ceylon became a major producer of agricultural exports, such as coffee, tea and rubber, and the data on agricultural export production are particularly extensive. Consequently, when the country received a degree of self-government in 1931 and independence in 1948, Ceylon?s official agencies generated a good amount of economic statistics of reasonable quality compared to other less-developed countries in Asia.

Several authors, such as Snodgrass (1966), have used Ceylon?s historical economic statistics in descriptive ways to assess long-term economic change in the country. Despite their relative richness, these data were hardly aggregated in a more rigorous way, such as through a national accounting framework, to trace the phases and proximate causes of long-term economic growth in the country. This is even more surprising, given that national accounting was introduced into this developing country already in the 1940s, and that a national accounting tradition developed in Ceylon to the extent that by the late-1950s both the Department of Census and Statistics and the Bank of Ceylon (BoC) produced official national accounts separately that retrospectively reached back to 1938, respectively 1950.

Only M.R.P. Salgado?s 1960 Ph.D. thesis, offered historical national accounts data for 1920-1938. He wrote the thesis at Cambridge University in the late 1950s under supervision of Alan R. Prest, who in 1948 had published UK national accounts during 1870-1946, and had pioneered national accounting of Nigeria in the early-1950s. With Salgado?s undergraduate degree at the University of Ceylon in mathematics, rather than economics, and the Cambridge reputation in applied economics, Salgado?s choice of Ph.D. topic may not be surprising. After completing the thesis, Salgado returned to work at the BoC where he took several UN assignments, among others making the first estimates of national income of Iraq in 1965. He joined the IMF in 1966, before becoming ambassador of Sri Lanka in 1988. Without opportunities to publish his thesis, Salgado?s pioneering work long remained out of reach to authors who studied Sri Lanka?s economic history. After retirement in 2002, Salgado sought to publish his Ph.D. thesis. He passed away in 2009, but his widow completed her husband?s wish in 2011.?

The book is of great value to both practitioners of historical national accounting in developing countries, and to economic historians of Sri Lanka. Most of it focuses on developing a national accounting methodology in the context of incomplete statistical information. Historical national accountants will appreciate Salgado?s exemplary close scrutiny of the quality of available statistical data in primary and secondary sources, as well as his careful assessments of the assumptions he was required to make when relevant data on output, inputs and prices were not directly available. Salgado had to address issues that could not be addressed with simple reference to the guidelines of the UN System of National Accounts, just like today?s historical national accountants. However, he had the advantage of being able to do verify his assumptions with retired and active public servants in Ceylon during the late-1950s, something that is difficult to do today.

The economic historian will find a meticulously compiled wealth of data in the book to analyze a crucial period in Ceylon?s economic history. A major theme in Ceylon?s economic historiography is the long-time vulnerability of its small economy (just over 5 million people in 1930) to significant changes in the terms of trade of its commodity exports. During the 1920s and 1930s, prices of Ceylon?s main export commodities fluctuated considerably, leaving the incomes and employment of the country?s workforce, as well as public finances, highly dependent of the vagaries of global markets. Salgado not only presents national accounts data that aggregated to Gross Domestic Product in current prices, but also balance of payments data that allow the estimation of Gross National Product.

The book offers a detailed quantitative analysis of fours sectors of Ceylon?s economy (public and private sectors, households and the rest of the world), as well as their interactions, during 1920-1938. Salgado?s findings can be summarized as follows. Agriculture generated on average 29% of GDP, indicating that structural change seemed well-advanced in Ceylon. Average per capita GDP was the equivalent of 57 US$, peaking in 1926 at 80 US$ and reaching a nadir in 1932 at 33 US$, less than 10% of GDP per capita in the U.S. The ratio of exports and GDP was on average 34%, indicative of an open economy, dependent on export earnings. Ceylon had a significant commodity trade surplus, which largely underpinned the disbursement of private sector profits to investors located overseas. On average, net overseas payments were 7% of GDP, with a maximum of 12% in 1925. The average ratio of public expenditure and GDP was just 14% and the ratio of gross fixed capital formation and GDP was just 11%, both indicating limitations to the roles of public policy and investment in spurring economic growth.

Unfortunately, Salgado did not generate constant price series. Dutta (1974) used his own deflator to express Salgado?s GNP per capita in constant 1928 prices and found that Salgado?s estimates yielded a significant increase in GNP per capita of 6% per year during 1920-1926 and a remarkably constant level of GNP per capita during 1927-1935, despite the post-1929 fall of Ceylon?s export revenues. The constant level during the crisis years differed from trends in other Asian countries involved in international trade. The main explanation is that the prices of Ceylon?s import products, especially rice, fell in line with those of its export products (Gunewardena 1965).

References:

Dutta, Amita (1973) International Migration, Trade, and Real Income: A Case Study of Ceylon, 1920-1938. Calcutta: World Press Private.?

Gunewardena, Elaine (1965) External Trade and the Economic Structure of Ceylon 1900-1955. Colombo: Central Bank of Ceylon.

Snodgrass, Donald (1966) Ceylon: An Export Economy in Transition. Homewood: Irwin.

Pierre van der Eng is the author of numerous articles on the economic history, economy and business development in Indonesia. He recently published ?Why Didn?t Colonial Indonesia Have a Competitive Cotton Textile Industry?? Modern Asian Studies, 47 (2013) 1019-54. His current research projects include a monograph on historical economic statistics of Indonesia, containing improved historical national accounts estimates since 1870.

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Subject(s):Income and Wealth
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII