history, institutions and economic performance:...

History, Institutions and Economic Performance:

The Legacy of Colonial Land Tenure Systems in India

Abhijit Banerjee (MIT)Lakshmi Iyer (Harvard)

The New History of Economic Inequality, UCLA April 17, 2004

(Courtesy of Lakshmi Iyer. Used with permission.)

Motivation

• Do institutions matter?

--Institutions =“rules of the game”; distribution of economic and political power in societies

--Large and growing literature which correlates institutional measures and economic performance: North and Thomas (1973), Knack and Keefer (1995), La Porta et al (1998, 2000)--Endogenize institutions: Engerman and Sokoloff (1997, 1998), Acemoglu, Johnson and Robinson (2001)

• We study the impact of a very specific historical institution: British land tenure systems in India.

Our context• Land tenure systems: arrangements for the collection of land revenue;

defined who had the liability to pay the land tax to the British and by implication who had “property rights”. Important determinant of asset distribution and contracting environment in agriculture.

• Land revenue was more than 60% of total British government revenue in 1840. The choice of land tenure system was the subject of considerable policy debate.

• We will compare the impact of different land tenure systems on agricultural productivity and other outcomes today.

• These systems were formally abolished in the early 1950’s. We thus look at pure “institutional overhang” effects.

Road Map

• Land tenure systems in British India

• OLS comparisons

• IV results and other robustness checks

• How do historical factors affect current outcomes?

Growth of the British Empire in India

• 1757: Battle of Plassey and political control of Bengal• 1792-1801: Conquests in Madras Presidency • 1801-1818: Conquest of Bombay Presidency, Central

Provinces and North-Western Provinces • 1820’s: Orissa and Assam conquered • 1846, 1849: Sikh Wars and conquest of Punjab

• 1856: Annexation of Oudh • 1857: “Sepoy” Mutiny • 1858: British Crown takes over administration; no

further conquests • 1947: End of British rule; Indian empire partitioned

into India and Pakistan.

Pre-British and British land revenue systems • Mughal system (16th and 17th century): revenue collector

was a transferable state official; revenue rights non-hereditary

• British land tenure systems set up during 1765-1865

• Three major types of British systems: – Landlord-based (zamindari, malguzari): Property rights given to

big or small landlords; 1793 Permanent Settlement in some areas makes revenue payments fixed.

– Individual-based (raiyatwari): Property rights given to cultivators; detailed survey and record of rights maintained

– Village-based (mahalwari): Property rights given to village bodies with joint ownership. Depending on size of village body, could resemble landlord-based or individual-based systems.

Choice of land tenure system

• Influence of individual administrators: – Munro supports raiyatwari in Madras (1812) – Elphinstone implements raiyatwari in Bombay (1820s) – Mackenzie recognizes village bodies in North-West Provinces (1819)

• Ideology prevalent in England: Anti-Jacobinism, Utilitarianism. (Stokes 1978)

• Beliefs about local tradition or presence of an existing landlord class (e.g. Bengal). No consensus about the “original” system of India.

• Date of land revenue control: areas conquered later were more likely to get non-landlord systems due to growth of infrastructure, changes in ideology and precedents set in other places

• Political events: landlords in Oudh were reinstated after the 1857 revolt, despite the initial plan of a village-based system

Data

• District-level annual data on agricultural investments and productivity 1956-87

• Historical land systems and extent of landlord control: Land Settlement Reports (1870s, 1880s), historical accounts

• Current districts are matched up to old districts using old and new maps: district boundaries have changed much less than state boundaries which were reorganized in 1956

• We drop districts which are currently in Pakistan or Bangladesh and those which were under administrative control of Indian rulers.

Empirical strategy

• OLS regressions:Yit = constant + αt + β NLi + Xitγ + εit

• Yit = outcome in district i and year t -- Agricultural investments: irrigation, fertilizer use, adoption of

high-yielding varieties (HYV) -- Agricultural productivity: yield per hectare -- Investments in human capital

• NLi = measure of non-landlord control (proportion of district not controlled by landlords)

• Xit = control variables (geography, date of British land revenue control)

Endogeneity concerns

• Choice of land revenue system often determined by political factors

• Landlord areas have better geographical characteristics e.g. greater rainfall and topsoil depth

• Some areas were converted from a landlord system to non-landlord; these were usually less productive areas where the landlord could not meet the revenue commitments

• Landlord areas were more productive in the Colonial period.

• Nevertheless, we compute instrumental variable estimates to address potential endogeneity concerns.

Results

• OLS results: Non-landlord areas have significantly higher agricultural investments and yields

• Sensitivity to alternate measures of NL – Classify all districts as either “landlord” or “non-landlord” – Compare landlord areas to individual-based areas

• We might be concerned about (i) Omitted district characteristics (ii) Measurement error in NL (iii) Endogeneity of historical institutions

• Use only neighboring districts which happened to have different land tenure systems

• Construct instrumental variable estimates

Instrumental variable estimates

• Instrument = dummy for whether the British took over revenue control between 1820 and 1856

• Date of revenue control = date of conquest for most places

• Why is this a good instrument?– Administrative considerations favor landlord systems in

areas conquered earlier. – Non-landlord systems established in Madras and NWP

starting from 1820, forming precedents. – Change in Oudh policy after revolt of 1857

• We control linearly for the direct effect of a longer period of British control over land revenue.

Why do landlord areas fall behind?

• Differences widen in the mid-1960s when new agricultural technologies are introduced.

• Inequality– Landlord areas had higher land and wealth inequality in the

colonial period. – Inequality has declined more in landlord areas in the post-

Independence period. • State policies

– States with more landlord areas have enacted more land reforms.

– States with more landlord areas have significantly lower development expenditure.

– Poverty reduction is lower in states with more landlord areas.

Direct vs indirect colonial rule • Compare areas in India which were under direct colonial

rule (``British Empire'') with areas which were under indirect colonial rule (``Native states''). Comparison is in the post-colonial period.

• British controlled foreign and defense policy but internal administration was left to local (Indian) rulers.

• Omitted variables bias likely to be less severe than in cross-country studies.

• British colonial history in India provides a source of exogenous variation in colonial status => control for selection into the British empire

• Uniform administrative structure after the end of colonial rule

Empirical Strategy and Results

• OLS results: --British districts have significantly higher rainfall and lesser

proportion of barren or rocky areas. --British areas have significantly higher agricultural investments

and productivity, and slightly fewer schools and health centers in the modern period.

• Use Dalhousie’s “Doctrine of Lapse” as an exogenous determinant of British annexation: native states taken over if the ruler died without a natural heir in 1848-56

• IV results are different from OLS: --British districts have no advantage in agriculture, but significantly

fewer schools and health centers. --British districts have significantly higher infant mortality rates. --Differences smaller over time => better provision of public goods

by local rulers in the past.

Results for public goodsCoefficient on

British dummy British dummy Full sample Post-1847

sample

Mean OLS IV Dependent variables: Proportion of villages having public goods Middle school 0.2485 -0.046 -0.091**

(0.034) (0.037) High school 0.1260 -0.068* -0.065

(0.040) (0.042) Primary health center 0.0415 -0.024* -0.031**

(0.014) (0.013) Primary health 0.0753 -0.002 -0.053** subcenter (0.017) (0.021) Roads 0.4344 0.043 -0.198***

(0.065) (0.066) Infant mortality rate 80.04 -0.772 26.87** 1991 (6.36) (10.54) Controls Latitude, rainfall, coast, proportion sandy/barren # districts 377 163 # native states 96 71

TABLE 2 Differences in geography

Latitude

Altitude

Mean annual rainfall (mm)

Top 2 soil types: Black soil

Alluvial soil

Red soil

Top-soil depth <25 cm

25-50cm

50-100 cm

100-300 cm

>300 cm

Population density

Proportion rural

Proportion of working population in farming

Cash crops to cereals ratio

Difference

22.19 -4.35*** (0.961)

366.41 93.64*** (25.98)

1263.09 -373.99*** (80.83)

0.2096 0.244*** (0.072)

0.1677 -0.135** (0.067)

0.5689 0.075 (0.090)

0.0181 0.016 (0.024)

0.1145 -0.076 (0.058)

0.2289 0.193 (0.075)

0.0904 0.135*** (0.051)

0.5482 -0.268*** (0.088)

36.44 -11.22** (4.02)

0.8102 -0.066*** (0.023)

0.7119 -0.050* (0.027)

0.149 0.152*** (0.048)

TABLE 3 DIFFERENCES IN AGRICULTURAL INVESTMENTS AND YIELDS

Mean non-landlord proportion = 0.5051 (s.d.=0.4274)

Dependent variable Mean Coefficient on NL OLS

INVESTMENTS

1. Proportion of irrigated area

2. Fertilizer use (kg/ha)

3. Proportion of rice area under HYV

4. Proportion of wheat area under HYV

5. Proportion of other cereals area under HYV

YIELDS

0.276

24.64

0.298

0.518

0.196

0.065* (0.034)

10.708*** (3.345) 0.079* (0.044) 0.092** (0.046) 0.057* (0.031)

1. log(yield of 15 major crops)

2. log(rice yield)

3. log(wheat yield)

0.157** (0.071) 0.171** (0.081) 0.229*** (0.067)

Year fixed effects YESGeographic controls YESLength of British rule YESClustering for errors YES

Standard errors in parantheses.***, ** , * denote significance at 1%, 5% and 10% level

166

DIFFERENCES IN AGRICULTURAL INVESTMENTS AND YIELDS

Excluding Bengal and Bihar

Dependent variable Without Bengal and Bihar OLS

INVESTMENTS



0.066* (0.035)

10.992*** (3.406) 0.094**

3. Proportion of rice area under HYV (0.043) 0.119***

4. Proportion of wheat area under HYV (0.045) 0.084***

5. Proportion of other cereals area under HYV (0.024)

YIELDS


2. log(rice yield)

3. log(wheat yield)

0.152** (0.074) 0.195** (0.081) 0.228*** (0.070)

No. of districts 143Year fixed effects YESGeographic controls YESLength of British rule YESClustering for errors YES

Standard errors in parantheses.***, ** , * denote significance at 1%, 5% and 10% level

AGRICULTURAL INVESTMENTS AND YIELDS BINARY MEASURES OF NON-LANDLORD CONTROL

NL=0 for landlord-based and Oudh districts NL=1 for individual-based and village-based districts other than Oudh

Dependent variable Coefficient on NL dummy OLS OLS

Exclude village-based

INVESTMENTS






0.077*** (0.027) 9.988*** (2.301) 0.016

(0.032) 0.031

(0.036) -0.035 (0.025)

0.005 (0.032)

10.695*** (3.040) 0.074* (0.038) 0.107** (0.052) 0.109*** (0.041)

YIELDS


2. log(rice yield)

3. log(wheat yield)

0.173*** (0.053) 0.099

(0.062) 0.188*** (0.054)

0.089 (0.085) 0.173** (0.079) 0.143

(0.098)

No. of districts 166 109 Year fixed effects YES YES Geographic controls YES YES Length of British rule YES YES Clustering for errors YES YES

Standard errors in parantheses ***, ** , * denote significance at 1%, 5% and 10% level

DETAILED REGRESSION SPECIFICATION Dependent variable: Log agricultural yield (based on 15 major crops)

No controls Controls altitude, latitude rainfall, coast soil types British rule

Proportion non-landlord 0.101 0.091 0.123 0.117* 0.157** (0.076) (0.088) (0.086) (0.069) (0.071)

Altitude 0.296 0.425* 0.644*** 0.722*** (0.243) (0.245) (0.194) (0.189)

lat 0.004 0.003 -0.007 -0.006 (0.006) (0.007) (0.007) (0.007)

Mean annual rainfall 0.161** 0.029 0.006 (0.067) (0.060) (0.062)

Black soil dummy 0.171* 0.072 0.032 (0.096) (0.094) (0.093)

Red soil dummy -0.409*** -0.396*** (0.085) (0.085)

Alluvial soil dummy 0.137* 0.104 (0.071) (0.069)

Coastal dummy 0.196*** 0.190*** (0.053) (0.052)

Date of British conquest -0.002*** (0.001)

Constant -0.314*** -0.503*** -0.782*** -0.494*** 3.586** (0.038) (0.145) (0.181) (0.186) (1.502)

No. of districts 166 166 166 166 166 R-squared 0.17 0.19 0.23 0.42 0.43

* significant at 10%; ** significant at 5%; *** significant at 1% Standard errors in parantheses, adjusted for within-district clustering. Data from 1956-87. Year fixed effects in all regressions.

TABLE 4 INSTRUMENTAL VARIABLES ESTIMATION: FIRST STAGE ESTIMATES

Dependent variable: Proportion non-landlord

Instrument = 1 if district was conquered between 1820 and 1856

(1) (2) (3) Instrument 0.331*** 0.430*** 0.419***

(0.086) (0.092) (0.087)

R-squared 0.40 0.43 0.63 No. of observations 166 166 166

Geographic controls YES YES YES Date of British rule YES YES YES Date of British rule squared NO YES NO State fixed effects NO NO YES


TABLE 4 AGRICULTURAL INVESTMENTS AND YIELDS

Instrument = dummy for being conquered between 1820 and 1856

Dependent variable Coefficient on NL OLS IV

Neighbors only

INVESTMENTS






YIELDS

0.101** (0.041)

10.589** (4.979) -0.015 (0.083) 0.078** (0.034) -0.025 (0.024)

0.216 (0.137)

26.198** (13.244) 0.411** (0.163) 0.584*** (0.163) 0.526*** (0.129)


2. log(rice yield)

3. log(wheat yield)

0.145** (0.061) 0.126

(0.098) 0.253*** (0.084)

0.409 (0.261) 0.554* (0.285) 0.706*** (0.214)

No. of districts 35 166 Year fixed effects YES YES Geographic controls YES YES Length of British rule YES YES Clustering for errors YES YES

Standard errors in parantheses. ***, ** , * denote significance at 1%, 5% and 10% level

ARE YIELDS EXPLAINED BY INVESTMENTS?

Proportion non-landlord

Proportion of irrigated area

fertilizer use (kg/ha)

% area under HYV

Log total yield Log rice yield Log wheat yield (1) (2) (3)

0.035 0.070 0.109 (0.053) (0.063) (0.063) 0.693** 0.439** 0.435** (0.112) (0.096) (0.117) 0.007** 0.004** 0.001 (0.001) (0.001) (0.001) 4.274** 0.580** 0.618** (1.122) (0.063) (0.070)

0.60 0.52 0.56R-squared No. of districts 166 166 166 Year fixed effects YES YES YES Geographic controls YES YES YES Length of British rule YES YES YES Clustering for errors YES YES YES


WHEN DO THE DIFFERENCES APPEAR?

Dependent variable Coefficient on NL 1956-65 After 1965 Difference

(1) (2) (3) INVESTMENTS



YIELDS

0.046 (0.033) 1.026** (0.425)

0.079** (0.036)

15.581*** (4.763)

0.033** (0.016) 14.55*** (4.44)

0.066 0.201*** 0.135*** 1. log(yield of 15 major crops) (0.065)

0.108 (0.076) 0.196**

(0.033) 0.088**

2. log(rice yield) (0.069) 0.146**

(0.089) 0.268***

(0.044) 0.122*

3. log(wheat yield) (0.058) (0.079) (0.063)

No. of districts 166 166 166 Year fixed effects YES YES YES Geographic controls YES YES YES Length of British rule YES YES YES Clustering for errors YES YES YES


TABLE 7 EDUCATION AND HEALTH

Dependent Mean of Coefficient on NL variable dependent OLS IV

variable (1) (2) EDUCATION AND HEALTH INVESTMENTS 1981 Proportion of villages having: Primary school 72.82 14.403*** 36.195**

(3.486) (14.585) Middle school 17.79 8.454*** 12.521

(2.401) (9.075) High school 7.35 3.579** 11.923

(1.445) (12.953) Primary health center 2.01 0.717* 2.344

(0.374) (1.481) Primary health subcenter 3.42 3.567** 4.025

(1.437) (5.385)

EDUCATION AND HEALTH OUTCOMES Literacy rate (1961, 1971, 1981, 1991) 0.2945 0.0524** 0.1562**

(0.0190) (0.0624) Infant mortality rate (1991) 82.17 -32.71*** -56.93***

(5.38) (19.00)

No. of districts 168 168 Year fixed effects YES YES State fixed effects NO NO Geographic controls YES YES Length of British rule YES YES


APPENDIX TABLE 4 STATE DEVELOPMENT EXPENDITURE

Variable Mean Landlord states Non-landlord states Difference

(1) (2) (3)

Real development expenditure (1960 rupees per capita)

1960-1992 26.38 44.24 7.37 (2.45)

1960-1965 12.80 19.18 5.67 (1.83)

1966-1992 29.40 49.40 8.18 (2.54)

Development expenditure/state domestic product

1960-1992 0.0869 0.1056 0.0218 (0.0071)

1960-1965 0.0497 0.0639 0.0195 (0.0071)

1966-1992 0.0952 0.1135 0.0227 (0.0074)

Difference is computed after controlling for level of state domestic product per capita


Coefficient on NL OLS OLS OLS Base State dev exp State fixed

per capita effects INVESTMENTS

1. Proportion of irrigated area 0.065* (0.034)

10.708*** 2. Fertilizer use (kg/ha) (3.345)

0.079* (0.044)

3. Proportion of rice area under HYV 0.092** (0.046) 0.057*

YIELDS (0.031)

1. log(yield of 15 major crops) 0.157** (0.071)

2. log(rice yield) 0.171** (0.081) 0.229***

3. log(wheat yield) (0.067)


0.074** 0.028 (0.035) (0.036)

10.805*** 4.297 (3.717) (3.308) 0.007 0.000

(0.040) (0.042) 0.061 0.028

(0.047) (0.039) 0.025 0.043*

(0.030) (0.026)

0.174** 0.059 (0.076) (0.072) 0.083 0.016

(0.082) (0.078) 0.243*** 0.150*** (0.072) (0.045)

No. of districts 166 166 120 Year fixed effects YES YES YES Geographic controls YES YES YES Length of British rule YES YES YES Clustering for errors YES YES YES State fixed effects NO NO YES

TABLE 9 EDUCATION AND HEALTH

Dependent Coefficient on NL variable OLS OLS OLS

Base state dev exp state fixed per capita effects

EDUCATION AND HEALTH INVESTMENTS 1981Proportion of villages having:Primary school 14.403*** 6.778** 9.681***

(3.486) (2.99) (3.365) Middle school 8.454*** 6.116** 5.454**

(2.401) (2.433) (2.438) High school 3.579** 1.185 2.172

(1.445) (1.207) (1.322) Primary health center 0.717* -0.007 0.863***

(0.374) (0.337) (0.311) Primary health subcenter 3.567** 2.402* 0.457

(1.437) (1.471) (1.259)

EDUCATION AND HEALTH OUTCOMES Literacy rate (1961, 71, 81, 91) 0.0524** 0.0290* 0.0241

(0.0190) (0.0171) (0.0176) Infant mortality rate (1991) -32.71*** -25.43*** -15.81***

(5.38) (5.28) (5.40)

No. of districts Year fixed effects State fixed effects Geographic controls Date of British land revenue control

168 168 117 YES YES YES NO NO YES YES YES YES YES YES YES

APPENDIX TABLE 8 CRIME RATES

Dependent Mean of Coefficient on non-landlord proportion variable dep.var OLS OLS IV OLS

Full sample Neighbors only Full sample State FE

CRIME RATES: 1971, 1981, 1991 Total crime/'000 population 2.024 -0.733*** -0.178 -1.998** -0.461**

(0.239) (0.423) (0.888) (0.223) Dacoities+riots/ '000 population 0.161 -0.046** -0.022 -0.084 -0.007

(0.018) (0.022) (0.060) (0.012) Violent crime/'000 population 0.246 -0.070*** -0.045* -0.178** -0.021

(0.023) (0.026) (0.083) (0.019) Stealing/'000 population 0.824 -0.358*** 0.137 -0.967* -0.210*

(0.112) (0.316) (0.503) (0.119) Petty crimes/'000 population 0.055 -0.002 -0.007 -0.059 -0.007

(0.009) (0.010) (0.039) (0.009)

No. of districtsa 218 37 218 150 Year fixed effects YES YES YES YES Geography and length of British rule YES YES YES YES State fixed effects NO NO NO YES Clustering for errors YES YES YES YES

APPENDIX TABLE 6 CHANGES IN POVERTY AND INEQUALITY

Dependent Mean of Coefficient on non-landlord proportion variable dep.var OLS OLS OLS IV OLS

Full sample Full sample Neighbors Full sample State FE (1) (2) (3) (4) (5)

CHANGE IN POVERTY AND INEQUALITY BETWEEN 1972 AND 1987

Change in Head Count Ratio from -10.95 -3.491 -6.844*** -4.951 8.187 -5.701** 1972 to 1987 (3.108) (2.466) (2.965) (13.235) (2.275)

Change in Gini coefficient from -0.0018 0.033** 0.019* 0.011 -0.013 0.018** 1972-1987 (0.013) (0.010) (0.010) (0.026) (0.007)

No. of districtsa 218 218 37 218 150 Year fixed effects YES YES YES YES YES Geography and length of British rule YES YES YES YES YES Control for initial 1972 levelb NO YES YES YES YES State fixed effects NO NO NO NO YES Clustering for errors YES YES YES YES YES

NEIGHBOURING DISTRICTS

Group States Landlord Non-landlord Reason for difference in tenure

1 Andhra Pradesh Srikakulam East Godavari Areas put under landlords and Permanent Vishakhapatnam Settlement before the rest of Madras

Presidency was converted to individual system.

2 Tamil Nadu Madurai Coimbatore Areas put under landlords and Permanent Ramanathapuram Thanjavur Settlement before the rest of Madras

Tiruchirapalli Presidency was converted to individual system. Tirunelveli

3 Madhya Pradesh, Bilaspur Raigarh Sambalpur district taken over in 1849 from local Orissa Raipur Sambalpur chief and put under individual cultivator system,

unlike CP which was conquered in 1818 and put under a landlord based system.

4 Maharashtra, Chandrapur Amravati Berar province taken over from Nizam in 1853 Madhya Pradesh Wardha Yavatmal and put under individual system, unlike CP'

Betul which had a landlord based system.

5 Uttar Pradesh Faizabad Allahabad Oudh districts have greater % of (East) Gonda Azamgarh landlords because of change of

Pratapgarh Basti policy after 1857 Mutiny. Sultanpur Gorakhpur

Jaunpur

6 Uttar Pradesh Hardoi Farrukhabad Oudh districts have greater % of (West) Kheri Fatehpur landlords because of change of

Rae Bareli Kanpur Nagar policy after 1857 Mutiny. Unnao Pilibhit

Shahjahanpur

LAND DISTRIBUTION : 1885

Province Dominant % land owned by large % land owned by peasant land-ownership landlords (paying more than proprietors or village

Rs.5000 in revenue) communities

Oudh Landlord 59.71 30.3 Central Provinces Landlord 3.8 1.4 NWP Village communities 12.09 1.84 Punjab Village communities 0 91.6 Madras Peasant proprietors 32.89 42.6 Bombay Peasant proprietors 0 76.14 Berar Peasant proprietors 0 93.74

LAND DISTRIBUTION: 1948

Province Dominant % land revenue paid by large % land revenue paid by peasant land-ownership landlords (paying more than proprietors or village

Rs.5000 in revenue) communities

Oudh Landlord 56.17 6.44 NWP Village communities 22.66 17.2

LAND DISTRIBUTION: 1990

Province % land holdings of size % land holdingsof size Ratio < 1 hectare 2-10 hectares (marginal) (medium)

Landlord districts 63.97 18.17 0.284 Village-based districts 62.48 18.96 0.303 Individual system districts 49.87 25.64 0.514

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