Direct

verses Indirect
Colonial Rule in India:
Long-Term Consequences
By Lakshmi Iyer
Group Charlie:
Goh Wei Ming
Lee Na Ryung
Lee Sze Zhin
Nguyen Ai Nhi

Research QuesBon
What are the long-term outcomes of areas that were under
direct BriBsh Colonial rule in India?

Why did NaBve States provide more public goods than the
BriBsh-ruled states?
What are the paKerns observed in the postcolonial period,
when BriBsh and NaBve States were subjected to a uniform
system of administraBons?

*Na$ve States: Areas of India that were under the administra$on of Indian Kings
rather than the Bri$sh rulers
2

Research Finding
The BriBsh tended to selecBvely annex areas with high
agricultural potenBal

Directly ruled BriBsh areas have persistently and
signicantly lower availability of public goods such as
schools, health centers and roads in the postcolonial period
Gap between direct and indirect ruled areas on human and
physical capital is expected to narrow over Bme

Timeline
1757: Beginning of the
BriBsh poliBcal control

1848-1856:
Doctrine of Lapse

1757-1847: AnnexaBon
(SelecBve annexaBon)

1947: End of
colonial rule

1857: End of
annexaBon

*Doctrine of Lapse: Annexed several na$ve states where ruler died without a natural heir.
4

Direct vs Indirect Colonial Rule

Direct Colonial Rule
- Excessive taxaBon to extract the
colonys resources to the benet
of the colonial power

Indirect Colonial Rule (Na<ve

States)
Ruling families of the naBve states
were acBve in the poliBcs

Colonial rulers are not intending to

seKle over the long term

- PoliBcal pressure to provide

public goods

- Poorly protected property rights

- BeKer incenBves to provide

public goods

- Insucient focus on Investment

Rulers were deposed if they

governed the state badly

OLS esBmates of the impact of

direct colonial rule

Yi:

an outcome variable for district i

- agricultural investments and producBvity
- public goods levels
Briti: a dummy for whether the district was part of
(directly ruled) BriBsh Empire
Xi:
other district characterisBcs (mainly geography)

i:
error term

BriBsh directly ruled areas have more agricultural investments and producBvity.
In other words, the impact of BriBsh direct rule on agricultural investment and
7
producBvity is posi<ve and signicant.

OLS esBmates of the impact of

direct colonial rule
Bri<sh Annexed Areas

Selec<ve Annexa<on

Higher Agricultural Investment
Endogeneity:
-BriBsh annex the areas with the greatest agricultural potenBal
OveresBmate
-BriBsh annex the areas with the least agricultural potenBal
UnderesBmate

8

BriBsh annexaBon policy was selecBve and geared toward

picking the areas with more potenBal for agriculture.
9

OLS esBmates of the impact of direct

colonial rule
Bri<sh Annexed Areas

Selec<ve Annexa<on

Higher Agricultural Investment

How to deal with endogeneity?

IV: Exogenous determinant of annexaBon

(Doctrine of lapse)
10

Areas annexed through either cession, misrule, or conquest

had higher agricultural producBvity than areas annexed due
to lapse, or death of a naBve ruler without heir 11

Instrumental Variable
Recall Historical Development
1757: Beginning of the
BriBsh poliBcal control

1848-1856:
Doctrine of Lapse

1757-1847: AnnexaBon
(SelecBve annexaBon)

1947: End of
colonial rule

1857: End of
annexaBon

Doctrine of Lapse (IV):

Areas where ruler died without a natural heir were annexed

Unexpected event for naBve states

Valid exogenous determinant of BriBsh annexaBon since it is a maKer of
circumstance rather than caused by systemaBc factors that might also aect
long term outcomes.
12

Instrumental Variable
Earlier:

Introduced Lapse as IV:

Lapse = 1 if the naBve state was not annexed before 1848 and the ruler
died without a natural heir between 1848 and 1856.

Lapse = 0 if the naBve state was not annexed before 1848 and such a death
did not occur during the period.
13

1848-1856: Doctrine of Lapse

InteracBon between ruler died without

heir and ruler died during the period

IV is staBsBcally
signicant predictor of
Brit dummy during the
Bme when the doctrine
was in force.

Geographical variables
do not predict BriBsh
AnnexaBon during the
period when the
doctrine was in force

IV is relevant:
Cov (z, x) = Cov (Lapse, Brit) 0

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Evidence of Selec<ve Annexa<on:

The dierence in signicance between Full Sample OLS
and Post-1847 Sample OLS results suggests a high
degree of selecBvity in BriBsh annexaBon policy. High
quality areas for agriculture output were annexed

Comparing Lapse-annexed areas with

naBve states, IV esBmates shows that
Lapse-annexed areas have no signicant
advantages over directly ruled areas
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Validity Of IV
List of Possible OmiTed Variables and Findings

(1) Was the Doctrine of Lapse tailored toward acquiring naBve states with
certain characterisBcs?
No historical evidence supports that the doctrine was put in place to
obtain any specic states (no selec<ve annexa<on)

(2) Was the death of certain rulers caused deliberately by the BriBsh?
The death of certain rulers was not caused by the BriBsh and the
colonials were not suspicious of the bona de of natural heirs
(3) Is it possible that the event of a ruler dying without an heir might reect
some characterisBcs of the areas or of the ruling family, which might
arguably aect long term outcome directly?
Regressions was rerun by the author but results are staBsBcally
insignicant

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Validity Of IV
List of Possible OmiTed Variables and Findings

(4) Did ruler death without natural heirs has any long term impact on public
goods availability without BriBsh annexaBon?
The author used a fake instrument and results are staBsBcally
insignicant.
(5) Was the territories annexed by lapse were administered dierently
compared to areas annexed by other means?
No. The lapsed areas were added to exisBng BriBsh provinces and
bought under the prevailing administraBve system in those provinces.

Conclusion:
Cov (z, u) = Cov (Lapse, u) = 0 (Exogenous)
Robustness checks support that BriBsh rule had signicant negaBve impact
on the availability of public goods in the postcolonial period
17

Results (mean of 1981 and 1991)

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Results (mean of 1981 and 1991)

yi
% of villages
having public
goods

Briti
Briti
Post-1847 Post-1847
Sample
Sample
OLS
IV

Primary School

-0.007

-0.011

Middle School

-0.047

-0.091**

High School

-0.061*

-0.065

Primary Health
Centre

-0.015*

-0.031**

Primary Health
Subcentre

-0.007

-0.053**

Canals

-0.024*

-0.043

Roads

-0.010

-0.198***

Combined Public
Goods

-0.026

-0.075***

Since end of colonial rule in

1947..
Persistent negaBve impact
of direct BriBsh rule on
availability of overall public
goods
Especially middle school,
health centres and roads

Controlled for geographical factors

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Results (mean of 1981 and 1991)

Long term impact on
development outcomes

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Results (mean of 1981 and 1991)

Health and
Educa<on
Outcomes
Literacy Rate

Briti
Briti
Full Post-1847
Sample
Sample
OLS
IV
0.017

0.019

Infant Mortality
Rate, 1981

-0.481

37.35**

Infant Mortality
Rate, 1991

-0.772

26.87**

Poverty, 1983

0.093**

0.223**

Poverty, 1987

0.048

0.139**

Poverty, 1993

0.066*

0.123***

Inequality, 1983

-0.021*

-0.064***

Inequality, 1987

-0.011

-0.045*

Inequality, 1993

0.002

-0.079**

Signicantly higher
infant mortality rates
and poverty
Signicantly lower level
of consumpBon
inequality
No signicant dierence
in literary rates =>
dierence in primary
schools no longer
signicant
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Beyond 1991
With the persistent long-term impact of colonial
rule, the gap between areas with direct and
indirect BriBsh rule is expected to conBnue to
widen.
Eventually, as access to public goods is fully
equalised, we will expect to see a convergence
eect on public goods

22

Convergence

briBsh

naBve

n+

ak-1

kbriBsh

knaBve

K*ss

k
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Why did the NaBve States

provide more Public Goods?
Type of land revenue system
- Similar land revenue systems between BriBsh and naBve
states Not a reason
- Within BriBsh states, culBvator-based land revenue
system (more equitable) associated with beKer outcomes,
relaBve to landlord-based system

IncenBves of administrators
- Kings have longer tenures
- Kings are liable to be deposed for poor governance

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Conclusion

Colonialism has a long term economic impact

In the context of India, it has long term hindering eects

QuesBon
Can colonialism bring any posiBve long term economic
impact?
- Singapore and Hong Kong enjoy a long term posiBve
impact of colonializaBon

Why is there a dierence?
- UlBmate cause: Dierence in the objecBves of colonial
insBtuBons

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ColonializaBon
ExploitaBon Colonialism
India
To exploit natural resources
and naBve populaBon
Lack of investment in
infrastructure and public good

SeKler Colonialism
Singapore
To establish a geographically
strategic trading locaBon
Signicant investment in
infrastructure and public good

De-ColonializaBon
Upon de-colonializaBon, the states of the countries are dierent
Aect the governance and policies of new insBtuBon
Aect the speed of convergence

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