Few questions in economic history generate more heat than the one that seems, on the surface, most straightforward: Did European rule in Asia and Africa make colonised peoples poorer? The intuitive answer – of course it did – has animated a long tradition of scholarship stretching from Eric Williams’s Capitalism and Slavery (1944) to Walter Rodney’s How Europe Underdeveloped Africa (1974). At its core, this tradition advances a surplus-transfer thesis: that imperial powers systematically extracted value from subordinated territories, concentrating wealth in the metropole while deepening poverty at the periphery. If true, this would neatly invert the predictions of economic convergence theory, which holds that poorer countries should, over time, catch up with richer ones.

The image of an omnipotent imperial machine extracting surplus at will belongs to political polemic, not to the historical record

The image of an omnipotent imperial machine extracting surplus at will belongs to political polemic, not to the historical record

The problem is that this story cannot be properly tested. The analytical framework required to test it does not exist in any precise form. Terms like ‘extractive,’ ‘exploitation,’ ‘expropriation,’ or ‘drain,’ so influential in Indian debates, carry enormous moral weight but have no agreed scientific meaning.

Most importantly, the idea of extraction does not work for a basic reason. Colonialism was not a one‑way flow of wealth outward. It also produced large amounts of trade, migration, and investment – much of it privately driven and, by normal economic standards, beneficial to participants on both sides. Any serious assessment of colonialism’s costs and gains must therefore include what local people earned from imperial connections. If income from these links paid for schools or hospitals, then those who used them clearly benefited. That benefit needs counting, too.

Consider public debt. Indian nationalists described interest payments on this debt as a drain. Yet the debt financed irrigation canals. To tell the full story, the cost of the debt must be weighed against the gains from the canals. Doing this comprehensively is not just difficult; it is impossible. Studies that ignore local economic benefits or the indigenous people who gained from the colonial system rest on shaky foundations.

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In the 1980s, imperial history grappled with how to account for the varied experiences of colonial rule. Studies done by members of the Cambridge School – most prominently scholars such as Chris Bayly and David Washbrook – showed that the British Empire had uneven effects on Indian society: different classes, castes, and regions experienced it in very different ways, sometimes as opportunity and sometimes as threat. This made universal judgments about imperial impact misleading.

If the effects were mixed, can we still estimate a net impact? In the 1980s and 1990s, a distinguished group of historians – including Patrick O’Brien, Leandro Prados de la Escosura, and Lance Davis – attempted to do just that. Through detailed cost–benefit analyses of the British Empire, they effectively mounted an indirect test of imperial theory, asking whether measurable economic gains could help explain why empires endured. Their aim was not to determine whether indigenous peoples lost overall, but whether aggregate gains were identifiable. They reached no firm conclusions.

More recent work by scholars such as Elise Huillery, Federico Tadei, Melissa Dell, and Benjamin Olken has revisited the question using more refined data and methods, but with similarly mixed findings. The honest verdict, then, is not that colonialism was economically neutral (it plainly was not) but that the size, direction, and mechanisms of its economic effects remain deeply contested.

In the face of this challenge, contemporary discussions of imperial impact have bifurcated. Nationalist, Marxist, and some postcolonial writers emphasise colonialism’s uniformly oppressive character, often presenting colonised populations primarily as victims. In contrast, academic scholarship, especially among economic historians, has coalesced around four distinct analytical approaches. One, led largely by economists, examines surplus transfer through specific institutions. A second set studies empires through its role in shaping capitalism, arguing that empires – especially the British – were not just states in the modern sense but multi-local systems aimed at global market integration. A third asks how far colonial states could drive economic change. A fourth emphasises how state capacity was shaped by the geographies of the places where most European empires ruled.

Did Colonial Institutions Extract or Adapt?

In the wake of a prominent North American intellectual movement that cast ‘institutions’ as the foundation of economic progress, scholars developed institution-centred interpretations linking colonial rule to long-term development outcomes. Daron Acemoglu, Simon Johnson, and James Robinson argued in the early 2000s that colonial regimes differed fundamentally in design: some were built to extract resources with minimal investment, while others encouraged settlement and institutional development. This divergence, they claimed, underlies contemporary global income differences.

The proposal was influential for a decade. Subsequent scholarship has largely dismantled it, showing that the supposed clean distinction between ‘extractive’ and ‘settler’ institutions does not hold up........

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