The Drain Gain: An Investigation into How Colonial Drain Helped Keep British Economy Buoyant
Abstract
The global hegemony of Britain in the 19th century is hardly a disputed fact. As a globalhegemon, it oversaw the transfer of surplus from the underdeveloped world to its shores. The
transfer of surplus was important in maintaining its status as a hegemon. In this essay, I
underline the need for Britain to colonize India, its biggest possession. India’s colonial history
has been the subject of a lot of scholarly attention but rarely has the focus shifted from the drain
of surplus as a cause of underdevelopment of India to a transfer of surplus from India to Britain
as a cause of development of Britain. I shed light on this aspect of global surplus extraction
and show empirically that this transfer of surplus was invaluable for the success of the British
economy. Marx’s macroeconomics and his well-known law of the falling rate of profit are my
main sources of support. Accounting for spurious correlation using Hamilton(1994), I find that
an increase in colonial drain by 1% increases the rate of profit of Britain by around 9 percentage
points. My findings are corroborated by the several robustness checks I perform, including using
different measures of domestic exploitation and a different method in Autoregressive Distributed
Lag (ARDL). About the whole of the 19th century up until the First World War is included in
my period of analysis.