History, Institutions and Economic Performance: The Legacy of Colonial Land Tenure Systems in India

Abstract

Do historical institutions have a persistent impact on economic performance? We analyze the colonial institutions set up by the British to collect land revenue in India, and show that differences in historical property rights institutions lead to sustained differences in economic outcomes. Areas in which proprietary rights in land were historically given to landlords have significantly lower agricultural investments, agricultural productivity and investments in public goods in the post-Independence period than areas in which these rights were given to the cultivators. We verify that these differences are not driven by omitted variables or endogeneity of the historical institutions, and argue that they probably arise because differences in institutions lead to very different policy choices.