Trade, Institutions and Ethnic Tolerance: Evidence from South Asia

I provide evidence that the degree to which medieval Hindus and Muslims could provide complementary, non-replicable services and a mechanism to share the gains from exchange has resulted in a sustained legacy of ethnic tolerance in South Asian towns. Due to Muslim-specific advantages in Indian Ocean shipping, inter-ethnic complementarities were strongest in medieval trading ports, leading to the development of institutional mechanisms that further supported inter-ethnic exchange.

Using novel town-level data spanning South Asia's medieval and colonial history, I find that medieval ports, despite being more ethnically mixed, were five times less prone to Hindu-Muslim riots between 1850-1950, two centuries after Europeans disrupted Muslim overseas trade dominance, and remained half as prone between 1950-1995. Household-level evidence suggests that these differences reflect local institutions that emerged to support inter-ethnic medieval trade, continue to influence modern occupational choices and organizations, and substitute for State political incentives in supporting inter-ethnic trust.