Bhavya Khanna relates a fascinating explanation:
Nehru in his often stated brilliance imposed severe restrictions on the trade and price of Gold in India. The sheik of Dubai had free trade in Gold, and was well, a smuggler’s paradise. Combine the two and you have possibly the largest movement of illegal gold trade in the 20th century, between India and Dubai. Figures, sadly, aren’t exactly freely available for the sheer amount of trade that took place since it was all kind of illegal. But figure it out for yourself. Dubai has about 1/20th the Oil reserves of Abu Dhabi and was pretty much a creek with a palace 30 years back. They started building some serious infrastructure post that, and the city now speaks for itself. [Link in the original.]
Hmm. Well, restrictions on economic freedom always up end benefiting someone else. If India’s attitudes towards the license raj and its labour laws are different, I’m guessing our manufacturing sector would be much better off vis-a-vis China, and the alarm clock I bought a few days ago might even have been made here, not there. And those labour laws, and a fair chunk of the license raj, are still in place. When will we learn?
(Link via email from Aadisht.)
Update: On a related note, here’s Tim Harford writing in the Financial Times about why “[s]uppressing a market is a bit like squeezing a balloon – the trade will usually pop up somewhere else.” Do read.