A reliable source of time-tested historical data

Book fact: The Ceylon (Sri Lanka) Economy 1920-1938: A National Accounts Study by Dr. M. R. P. Salgado, Publisher: Social Scientists’ Association, 2011. Reviewed by Sarath Rajapatirana

This book is the 1960 doctoral thesis submitted by Dr. M. R. P. Salgado to the University of Cambridge, which he had intended to publish in his lifetime. It is now being published by the Social Scientists' Association on the initiative of his wife, Surangani Salgado, and his family to mark his second death anniversary.

The thesis was supervised by Professor A.R. Prest, a leading Cambridge don who was well known for his contributions to public finance and his interest in developing countries. In addition, the Examiner of the thesis was Dr. Richard Stone who subsequently became a Nobel Laureate.

At that time, interest in developing countries was just beginning and what was most missing was empirical economic research on these countries. Dr. Salgado was a pioneer on the subject matter, but even more importantly the study of national accounts laid bare the working of a developing economy in great detail. The thesis includes two valuable appendices. All related Statistical Tables are appended to the end of the Volume.

The study has great value even some 50 years after it was written for several reasons. First, it has high technical value given that it presents a sound and robust set of estimates that were carefully prepared. Second, it was written by a scholar who is well known for his precision, care and commitment to the subject matter. Though trained as a mathematician, he delved extensively into primary sources.

This goes beyond the requirement for a Ph.D., which he could have received with much less work by evaluating growth models that had become the rage at the time, including those of Joan Robinson, Nicholas Kaldor and Robin Mathews, all of whom were Cambridge University faculty members. As a gifted mathematician, Dr. Salgado could have improved and extended these models. Instead, he chose to use primary data—“soil his hands” so to speak— and produced a valuable study that has stood the test of time and provided valuable information on the initial conditions of the Ceylon economy for subsequent research.

The period he chose (1920-38) saw very important changes following the adoption of the Donoughmore Constitution (1931), when the Ceylonese were given a large measure of self-government. The period also encompassed the Great Depression (1929-31), which wreaked huge disruption on the world economy, particularly on export-import economies, like Ceylon. Finally, the national income estimates in the study were prepared in a theoretically sound way. They provide a window into the welfare of the population at the time and were based on seminal work on theoretical welfare economics by Paul Samuelson (1950), A.C. Pigou (1952) and I.M.D. Little (1957).

In the study, the Ceylon economy was divided into four sectors: the public sector, the private sector, households, and the rest of the world. The public sector was analyzed in considerable detail, given the availability of data. These estimates went beyond the Government since the public sector included many different entities. Estimating private sector output, a difficult task, was done with great care using acceptable statistical methodologies, filling data gaps with multiple regressions and establishing consistency among the estimates.

Thus, he was able to estimate different sub-sectors, which were then consolidated into the overall private sector accounts. Similarly, his household estimates provide a good glimpse into the standard of living at the time. Dr. Salgado’s efforts improved the import data work by Peter Newman (1955) and provided estimates closely linked to the external accounts of the country. One disadvantage is that the estimates are made at current prices, since good price indexes did not exist at the time. But, these estimates were converted to real values in later research once price indexes were developed.

Dr. Salgado’s work shows a remarkable effort and is a gift to many subsequent researchers, for economists have to rely on historical data constructed and examined with great care. Researchers can then test their hypotheses, models and conjectures on a sound footing.

Thanks to Dr. Salgado’s effort, economists, including the present reviewer, were able to use his estimates when no other reliable data were available. This included not just Sri Lankan but also many foreign researchers who examined the comparative income growth experience of India, Sri Lanka and other South Asian countries. We all owe Dr. Salgado a considerable intellectual debt for the care, precision and incredible commitment he put into this work.

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