Many commentators give at least partial credit for India's economic success to the political institutions left in place by British colonialism. Fareed Zakaria, for instance, believes India "got very lucky" in that its first generation of post-independence leaders "nurture the best traditions of the British" including "courts, universities [and] administrative agencies."
This paper compares economic outcomes across areas in India that were under direct British colonial rule with areas that were under indirect colonial rule. Controlling for selective annexation using a specific policy rule, I find that areas that experienced direct rule have significantly lower levels of access to schools, health centers, and roads in the postcolonial period. I find evidence that the quality of governance in the colonial period has a significant and persistent effect on postcolonial outcomes.
The finding is particularly interesting given that Iyer also shows that the areas directly annexed by the British tended be those with higher agricultural productivity. Despite their potential, these areas "did not invest as much as native states in physical and human capital."
Iyer's paper provides an interesting companion to another recent study by Alexander Lee and Kenneth Schultz of Stanford, which compared economic outcomes of formerly British and formerly French districts of Cameroon:
[W]e focus on the West African nation of Cameroon, which includes regions colonized by both Britain and France. Taking advantage of the artificial nature of the former colonial boundary, we use it as a discontinuity within a national demographic survey. We show that rural areas on the British side of the discontinuity have higher levels of wealth and local public provision of improved water sources. Results for urban areas and centrally-provided public goods show no such effect, suggesting that post-independence policies also play a role in shaping outcomes.
Taken together, the moral of these studies could be that colonalism isn't great for a country's future political and economic wellbeing, but if a country is going to be colonized, they're better off with the British than the French. It's also very possible that the legacy of colonialism -- whether positive or negative -- manifests differently in national rather than local governance. Although on a purely anecdotal level, the French vs. British distinction seems to hold there as well.
Hat tip: Chris Blattman