Capital Inflows and Silver Standard in India

In this paper author tries to relate gold and silver inflows with GDP, GDP per capita, export, import and gold silver price ratio in India during silver standard regime from 1851 to 1893. Author used semi-log, double-log regression models, Johansen co-integration and VAR models (1991,1996) and Bai-Perron model (2003) for structural change taking data from Maddison(2006) and Ambedkar(1923). The paper concludes that gold inflows during 1851-1893 had decreased at the rate of 0.34% per year insignificantly but it was nonstationary, convergent and had no structural breaks. Silver inflows during 1851-1893 had increased at the rate of 1.51% per year insignificantly and found nonstationary and convergent and had one upward structural break in 1857. No co-integration among gold or silver inflows with GDP, GDP per capita,export, import and gold silver price ratio was found during 1851-1893 where VAR model was unstable and non-stationary and impulse response functions were diverging. Semi-log linear regression model among silver inflows and gold inflows with those variables were also insignificant although GDP, export, import and gold silver price ratio had been increasing at the rates of 0.52%, 9.14%, 5.16% and 0.77% per year significantly. But double-log linear regression model suggested that gold inflows had significant impact from GDP, GDP per capita, export, and gold-silver price ratio but had no significant impact of silver inflows from those variables during 1851-1893 respectively. Yet,there is bidirectional causality among gold inflows, GDP, GDP per capita, export, import and gold silver price ratio significantly during the given period. Even, there were sharp depreciation of rupee sterling rate, falling silver price, silver production and rising gold price and gold production during the silver standard regime. Thus, gold and silver inflows could not synthesize the silver standard more effective in macro-dynamic adjustment during 1851-1893 although the series of managerial experiments of the commissions and government are equally responsible for instability of the silver standard in India which was equally identical with gold standard in England.