Abstract
We examine the impact of legislated land ceiling size on capital investment and industrialisation in the Indian states. India's land ceiling legislations of 1960s and 1970s had imposed a ceiling on maximum land holdings and redistributed above-ceiling lands. These ceiling legislations, effectively implemented or not, had increased land fragmentation and increased transactions costs of acquiring land for industries. Using state-level data from major Indian states, we show that low ceiling states had lower capital investment and lower industrialisation, when we consider relative (post-1971 ceiling size relative to pre-1971 one) or aggregate effects of legislated ceiling size, ceteris paribus. We eliminate competing explanations and attribute these results to higher transaction costs in states with lower ceiling size that has led to greater land fragmentation and hence lower landholding size. Low ceiling states also had lower share of non-cropped land and lower poverty rates, yielding policy implications beyond the Indian border.