Iyer (2004) and Banerjee and Iyer (2005) consider a somewhat different channel of in-
fluence. Both these paper study the differential impact of colonial rule within a single
country, India. Iyer studies British annexations of parts of India, and the effect today
on public goods provision across annexed and non-annexed parts. There is obvious endogeneity
in the areas chosen for annexation (a similar observation applies, in passing,
to countries “selected” for colonization). Iyer instruments annexation by exploiting the
so-called Doctrine of Lapse, under which the British annexed states in which a native
ruler died without a biological heir. Banerjee and Iyer study the effect of variations
in the land revenue systems set up by the British, starting from the latter half of the
eighteenth century. In particular, they distinguish between landlord-based institutions,
in which large landlords were used to siphon surplus to the British, and other areas
based on rent payments, either directly from the cultivator or via village bodies. While
these institutions of extraction no longer exist (India has no agricultural income tax),
the authors argue that divided, unequal areas in the past cannot come together for collective
action. Dispossessed groups are more worried about insecurity of tenure and fear
of expropriation than about the absence of public goods, investment (public or private)
or development expenditure.