GCOE Discussion Paper Series
Global COE Program

Human Behavior and Socioeconomic Dynamics
Discussion Paper No.45

Colonial Experience and Postcolonial Underdevelopment in Africa

Nobuhiro Mizuno and Ryosuke Okazawa

April 2009GCOE Secretariat
Graduate School of Economics

OSAKA UNIVERSITY

1-7 Machikaneyama, Toyonaka, Osaka, 560-0043, Japan

Colonial Experience and Postcolonial
Underdevelopment in Africa∗
Nobuhiro Mizuno†

Ryosuke Okazawa‡

February 23, 2009

Abstract
In this paper, we analyze the connection between the history ofcolonial rule and postcolonial development in Africa. We focus on
the fact that many African colonies were governed by indirect rule.
Under indirect rule, indigenous people are divided into two groups: aprivileged ruling group and an unprivileged ruled group. Our model
assumes that the ruled group cannot observe how their deprived resources are divided between the metropolitan ruler and the rulinggroup. In this economy, a large level of exploitation by the metropolitan ruler yields distrust among indigenous groups and creates a negative effect on postcolonial economic and political development.
Keywords: Africa, colonialism, indirect rule, colonial legacies, ethnic
conflict
JEL Codes: D74; N47; O10∗

We are grateful to our advisers, Akihisa Shibata and Kazuhiro Yuki, and an anonymous referee for helpful comments and suggestions. We also would like to thank Masahisa
Fujita, Shingo Ishiguro, Katsunori Yamada, Daishin Yasui and participants of the Japanese
Economic Association Meeting at Kinki University, for their helpful comments and discussion. Of course, all errors are ours.
†
Corresponding author: Graduate School of Economics, Kyoto University, E-mail:n.mizuno@e01.mbox.media.kyoto-u.ac.jp‡
Graduate School of Economics, Kyoto University

1

Introduction

Many researchers have studied the connection between colonial legacies andpostcolonial development. In relation to these connections, Bertocchi andCanova (2002) found that exploitation activities by a metropolitan ruler havea negative impact on the growth rates of postcolonial African countries. They
also found that the identity of the colonial power is directly related to growth
rates after independence in these countries. Lange (2004) focused on the
distinction between direct and indirect rule, and found that the degree ofindirect rule has a negative impact on postcolonial political development in
British colonies.
Motivated by these empirical studies, this paper builds a model to highlight the relationship between colonial experience and economic and political development after independence in Africa. We focus on the fact thatmost African colonies were governed by indirect rule in the colonial era. We
show that, under indirect rule, exploitation activities by the metropolitan
ruler yield distrust between the indigenous privileged class and other people, harming postcolonial economic and political development in Africa. The
argument of this paper is highly motivated by the history of colonial andpostcolonial Africa. We link poor economic performance after independence
to the history of African politics and provide a plausible explanation on thecauses of some historical events such as the conflicts in Rwanda, Burundi,
and Zanzibar.
The basic ideas of the model are as follows. We consider an economy
which reflects African history during the colonial period and after independence. In the colonial period, which corresponds to the first stage in themodel, there exist a metropolitan ruler and two indigenous groups. The
metropolitan ruler appoints one group to a ruling position. Therefore, theindigenous people are divided into a privileged ruling group and an unprivileged ruled group. The metropolitan ruler instructs the ruling group totransfer the resources of the indigenous people to the metropolitan ruler.
This setup captures the indirect rule in the colony.
Using the political power given by the metropolitan ruler, the ruling groupcan exploit the resources of the ruled group for its own consumption. Therefore, the resources of the ruled group are transferred to both the metropolitan ruler and the ruling group. The level of exploitation by the ruling groupdepends upon the ruling group’s preferences, and, most importantly, its “altruism” for the ruled group.
1

The information structure of the economy is as follows. The ruled groupcannot observe how many resources are transferred to the ruling group, but
can observe the total amount of deprived resources. This is because theresources of the ruled group that are transferred to the metropolitan ruler
are collected by the ruling group. The degree of altruism of the ruling group isalso assumed not to be observable by the ruled group. The ruled group infers
the degree of altruism of the ruling group by observing the total amount ofdeprived resources. Harsh exploitation by the metropolitan ruler yields theruled group’s distrust of the ruling group.
In the period after independence, which corresponds to the second stage
in the model, the metropolitan ruler leaves the economy. The ruling groupretains political power and controls the government. The ruled group takes
over the belief from the colonial period and, based on this belief, forms expectations about the policy which the ruling group adopts. The tyranny ofthe metropolitan ruler makes the ruled group suspicious of the ruling groupand leads to inefficient activities of the ruled group, such as underinvestment
and revolt.
This paper is related to several works that focused on the connection between colonial experience and economic development. In addition to Bertocchi and Canova (2002) and Lange (2004), Acemoglu et al. (2001), Grier(1999), and Nunn (2007) investigated the effect of colonial legacies on economic performance. Acemoglu et al. (2001) and Grier (1999) showed clear
channels in which experience in the colonial era affects postcolonial development. Acemoglu et al. (2001) argued that extractive institutions were built
by colonial powers in regions such as Africa where there was little settlementof Europeans, and that the colonial institutions shape current institutions
and affect income per capita. Grier (1999) found that former British colonies
have better economic performance than former French colonies, and that thedifference can be largely explained by the educational level at independence.
In this paper, we consider an alternative channel that connects the colonial experience with economic and political development after independence
in Africa. Nunn (2007) provided a model explaining the connection between colonial experience and underdevelopment in Africa adopting a different mechanism than ours. In Nunn’s multiple equilibrium model, indigenous
people choose between production and being rent-seekers. Nuun has shownthat when exploitation by the metropolitan ruler is severe, those who engage
in production gradually convert to rent-seeking. Since high rent-seeking (lowproduction) equilibrium is stable, the economy continues to converge to the2high rent-seeking equilibrium even after independence.
The remainder of this paper is organized as follows. Section 2 describes
the history of colonial and postcolonial Africa that is related to the argumentof this paper. Section 3 includes the construction and analyses of the model.
Finally, Section 4 presents the conclusions of the paper.

2

History of colonial and postcolonial Africa

In this section, we describe the history of Africa relevant to the argument
presented in the following sections. First, we describe the form of colonial
rule exercised by the European countries and then discuss how the legaciesof the colonial period have affected the economic and political developmentof postcolonial African countries.

2.1

Colonial rule in Africa

The feature of colonial rule in Africa that is relevant for the discussion in thispaper is indirect rule, which is the manner of rule in which a metropolitan
ruler appoints local chiefs to conduct administrative tasks such as tax collection and maintenance of law and order in their territory. In some cases,
traditional local authorities in Africa were reorganized for such governance,
and in other cases, the positions of the chiefs were newly imposed (Mamdani
1996; Betts and Asiwaju 1985).
As argued by many scholars, most African colonies were governed byindirect rule 1 (Beck 2001; Betts and Asiwaju 1985; Crowder 1964; Mamdani 1996). Although Crowder (1964) pointed out differences in the manner of British and French colonial rule, he stated that “both powers had
little alternative to the use of existing political authorities as a means ofgoverning their vast African empires, and in most cases these authorities
were headed by chiefs”(p.197). 2 Lange (2004) stated that “While the
British–and particularly, Lord Lugard–have been credited with inventing indirect rule, the French, Portuguese, and Belgians all used indirect forms of1

Although indirect rule was broadly used in colonial Africa, there are some examples
of direct rule, such as Lagos, Freetown, and Dakar, among others. Direct rule was used in
the beginning of colonial administration and urban civil society (Mamdani 1996).
2
French colonial policy shifted from direct rule to indirect rule in the late 19th andearly 20th centuries (Bleich 2005; Mamdani 1996).

3

rule”(p.908). Beck (2001) also stated that “indirect rule was practised invarying forms throughout colonial Africa” and that this view is “now widely
accepted”(p.604).
Indirect rule was the general method adopted to govern the Africancolonies for several seasons. Since the territory of the African colonies covered a large area and expanded rapidly, it was too expensive for metropolitan
rulers to rule the colonies directly by sending officers from the home countries. The climate of most of the African continent, which the Europeans
did not find suitable for intensive settlement with exceptions such as Algeria
and South Africa3 , and the geographically dispersed distribution of the local
population were also reasons for the prevalence of the indirect rule (Betts
and Asiwaju 1985). As Young (2004) stated, indirect rule was required forthe low-cost management of the colonies.
The chiefs who occupied the ruling positions in the indirectly ruled regions
earned revenue from the direct exploitation of inhabitants in those regions.
The metropolitan ruler empowered the chiefs in administrative, legislative,
and judicial aspects, and local governance was based on informal customarylaw. Therefore, the chiefs were able to use their power for their own interests. Since the chiefs occupied intermediary positions that connected themetropolitan ruler and the local population, they were able to extract the resources transferred between the local population and the metropolitan ruler(Lange 2004). These characteristics of the position and power of chiefs would
particularly apply to British colonies. Crowder (1964) compared British indirect rule to that of France and pointed out the following differences. In
British colonies, the chiefs and the officer from the metropolitan country had
an “advisory relationship”. Interference with the administration of chiefs
was minimized, and local tradition and customs were respected. On theother hand, in French colonies, chiefs were subordinated to the officer fromthe metropolitan country, and the duties and power of chiefs were clearly
defined. Lange (2004), however, stated that, although French indirect rule
was more formal concerning the characteristics of chiefs and had less respect
for the local tradition compared to British indirect rule, “formalization still
placed chiefs in an intermediary position and gave them extreme power over
local affairs while leaving the central administration incapacitated” (p.917).
3

In 1920, about 4,000 British immigrants, who were financially supported by the British
government, arrived on South Africa, and large numbers of immigrants followed them(Thompson 2001). In Algeria, many French immigrants arrived in the colonial era, andtheir share of the population reached 9.1% in 1921 (Miyaji 1978).

4

The fact that chiefs could make use of their intermediary position to extract the resources of indigenous masses is important for the argument in thefollowing sections.

2.2

The political structure in postcolonial Africa

In many postcolonial states in Africa, the local elites formed by indirectrule in the colonial era retained their privileged positions. Acemoglu et al.
(2001) wrote that “In many cases where European powers set up authoritarian institutions, they delegated the day-to-day running of the state to a small
domestic elite. This narrow group often was the one to control the state after
independence and favored extractive institutions”(p. 1376). The power andauthority of the local elites were secured by postcolonial African governments
because the central governments in postcolonial Africa depended on the local
powerholders to gain electoral support (Boone 1998; Beck 2001). Furthermore, as in the cases of European colonial powers, postcolonial African statesneeded to cooperate with the local powerholders to take control of the rural
regions (Berman 1998; Gennaioli and Rainer 2007).
There are many examples of African states sharing power with local elites
who served as intermediaries between colonial powers and indigenous people
under indirect rule. Under British rule, the Sierra Leone Protectorate was
ruled indirectly and administration was delegated to paramount chiefs andsub-chiefs. 4 In spite of the British attempt to lower the power of chiefs in theend of colonial era, the postcolonial government strengthened and protected
the authority of the paramount chief in each chiefdom after independence.
This is because national politicians required the electoral support of theparamount chiefs, who had a strong influence on the local population, inorder to take the helm of the state (Fanthorpe 2001).
A similar structure existed in postcolonial Senegal. Beck (1997, 2001)
argued that the local authorities, who served as intermediaries between the
French and the indigenous people in the colonial period, were tied to thecentral government and retained their authority after independence. Boone(1998) stated that, under the postcolonial regime in Senegal, “a great dealof discretion in policy implementation, and real prerogative over the use ofstate authority and resources, was devolved to local powerbrokers”(p.14). A
4A paramount chief was a primary position in a chiefdom, which was a basic administrative unit, and a sub-chief conducted administrative tasks, such as tax collection, in
smaller administrative unit.

5

similar connection between local powerholders and the central government
also existed in Mauritania, Niger, Chad, Nigeria, and Zaire under the rule of
Mobutu (Gennaioli and Rainer 2007; Nwaubani 1994; Tull 2003).

2.3

Postcolonial underdevelopment in Africa

Many studies have highlighted weak governance in Africa as a factor of poor
economic performance after independence. Accountability of the government, democratic competition, property rights protection, prevention of corruption, and rule of law were lacking in many African countries, which madepolitics in African countries favorable only for narrow elite groups. According to the argument of Acemoglu et al. (2001), the extractive institutions
built by colonial powers during the colonial period were inherited by the indigenous elite, and the resources of the masses were extracted by the elite
as in the colonial period. In such a situation, where the elite can exploit
the resources of the population with discretionary powers, the expectation of
producers that a large share of future output will be exploited by the elitecauses underinvestment and hinders economic development. Many studies
have shown significant and substantial effects of institutions (protection ofproperty right against infringement by the government or private agents) on
income and investment (Knack and Keefer1995; Mauro 1995; Hall and Jones
1999; Acemoglu et al. 2001; Rodrik et al. 2004). In this paper, we show thatthe more tyrannical the policy of the metropolitan ruler during the colonial
period, the greater the producers’ expectations of exploitation by the elite,
resulting in a smaller level of investment after independence. This paper iscomplementary to the studies mentioned above since the argument of thispaper shows that the colonial experience of severe exploitation by colonial
powers worsens the negative impact of bad institutions.
The argument of this paper is one possible explanation for the formationof distrust among indigenous groups. This distrust originating from experiences in the colonial period would be an important factor responsible forsome cases of postcolonial conflict in Africa. After a formal description of themodel, we demonstrate that the model can explain the conflicts in Rwanda,
Burundi, and Zanzibar.5
5There is a large literature on the causes of civil war and political instability in SubSaharan Africa (see e.g. Sambanis 2002 for survey). Studies show a robust relationshipbetween poverty and the risk of insurgency (Collier and Hoeffler 2004; Fearon and Laitin
2003). Collier and Hoeffler (2004) found that natural resource dependence also matters6

3

The model

We consider a two-stage model where the first stage represents the colonial
period in Africa and the second stage represents the period after independence. We assume that the independence is an exogenous and unexpected
event.6 There exist a metropolitan ruler and two indigenous groups. Since
all members of the same group are identical, we can treat each group as one
agent. The indigenous Group i = 1, 2 owns endowments ei in each stage.
The members of each group live for two stages. In the first stage, eachagent is unconcerned with the second stage since independence is unexpected
for the agents. The utility function for Group i, ui , is common to both of
the stages and is given by:
u1 = c1 + β ∗ c2 ,u2 = c 2 ,(1)where ci is the consumption level of Group i. Note that the utility of Group
1 depends on the consumption level of Group 2. Group 1 is concerned withthe consumption level of Group 2 because of altruism for Group 2. The
parameter β ∗ is the weight that Group 1 gives for Group 2. We can interpret
this parameter as the degree of altruism of Group 1. We assume that theparameter β ∗ is not observable for Group 2 and that Group 2 infers the valueof β ∗ by observing the behavior of Group 1 as we will see below. 7 The degreeof altruism of Group 2 is assumed to be zero for simplicity.

3.1

First stage: Colonial period

In the first stage, the metropolitan ruler appoints Group 1 to a ruling position
and requires the group to pay a certain amount of resources. Group 1 deprives
the endowments of Group 2 to meet the requirement of the metropolitan
ruler. In addition, using the political power given by the metropolitan ruler,
for civil war risk. One of the most surprising findings is that ethnic diversity does notmatter for civil war (Elbadawi and Sambanis 2000; Collier and Hoeffler 2004). In thispaper, we consider another hypothesis, which is that colonial experience affects conflicts
in postcolonial Africa.
6
We will briefly discuss on this assumption in conclusion.
7
The key mechanism of our model depends on the assumption that Group 2 does notknow the degree of altruism of Group 1. Therefore, it is not crucial whether Group 1 isaltruistic. That is, we do not exclude the case where β ∗ is zero or negative.

7

Group 1 can privately exploit the resources of Group 2. This setup captures
the system of indirect rule explained in the previous section.
Let τ and t denote the proportion of the endowments of Group 2 that istransferred to the metropolitan ruler and Group 1, respectively. The levelof exploitation by the metropolitan ruler is given exogenously; therefore τis an exogenous variable. The private exploitation involves costs, and thet2
cost function is given by 2∆e2 . This cost captures various costs specific to
the private exploitation by Group 1. Group 1 may be punished if private
exploitation is detected by the metropolitan ruler. ∆ is a parameter that
represents how easy it is for Group 1 to exploit the resources of Group 2.
The larger ∆ is, the easier Group 1 can exploit the resources of Group 2. The
cost of private exploitation is proportional to the amount of endowments ofGroup 2, e2 . Then, the consumption of Group i, ci , can be written as:µ¶
t2
c1 = e1 + t −
e2 ,
2∆
(2)
c2 = (1 − t − τ )e2 .
Since Group 1 determines the level of exploitation to maximize its utility
without considering the effect of the decision on circumstances after independence, the problem of Group 1 is given by:
µ
¶
t2
max
e1 + t −e2 + β ∗ (1 − t − τ )e2 .
t∈[0,1−τ ]2∆From the first-order condition, the solution of the above problem is givenby:8
t = ∆(1 − β ∗ ).

(3)

Hence the amount of exploitation by Group 1 decreases in the degree of altruism of Group 1, β ∗ . Since the altruistic ruling group takes the welfare lossof the ruled group due to exploitation seriously, the amount of exploitationby the altruistic ruling group is relatively small.

3.2

Inference on the degree of altruism

Group 2 cannot observe how its deprived resources are divided between themetropolitan ruler and Group 1. This is because the resources from Group8

We assume an interior solution. Note that the second-order condition is also satisfied.

8

2 that are transferred to the metropolitan ruler are also collected by Group
1. That is, Group 2 can observe the sum of the two rates t + τ , but cannot
observe these rates separately.
Here, we assume that Group 2 builds its belief about the degree of altruism of Group 1 according to the following process: Group 2 has a prior belief
about the amount of exploitation by the metropolitan ruler. Observing thesum of the two rates, Group 2 builds a belief about the degree of altruism,β ∗ , so as to be consistent with the prior belief.
Let τ̂ be the random variable representing the prior belief of Group 2
about the value of τ , and we assume that the distribution of τ̂ is given by:τ̂ ∼ U [τ , τ ].
Since the rate of exploitation by Group 1 is t = ∆(1 − β ∗ ), the observed sumof the two rates is ∆(1 − β ∗ ) + τ . Therefore, the inferred degree of altruism
β̂, which is a random variable, satisfies the following condition:∆(1 − β ∗ ) + τ = ∆(1 − β̂) + τ̂ .
The belief of Group 2 is built to be consistent with the entire amount of
exploitation that is observable for Group 2 and the prior belief of Group 2
about τ . By rewriting this equation, we have:β̂ = β ∗ +τ̂ − τ
.
∆Hence, the belief of Group 2 about the degree of altruism (the distributionof β̂) can be represented by:·¸τ − τ ∗ τ̄ − τ
∗
U β +
,β +
,
(4)
∆
∆
where its expected value is:1(E(τ̂ ) − τ )∆µ¶1 τ̄ + τ
∗
=β +
−τ .
∆
2

E[β̂] = β ∗ +(5)Note that the distribution of β̂ and its expected value depend on τ . As τ
increases, the entire amount of exploitation observable for Group 2 increases,
9and the ruled group confuses the larger observed exploitation with the larger
private exploitation by the ruling group. Hence, in such a case, the ruledgroup infers that the ruling group has less altruism toward the ruled group.
Equations (4) and (5) imply the following lemma.
Lemma 1. The distribution of the inferred degree of altruism and its expectedvalue shift downward as the metropolitan ruler’s exploitation increases. The
tyranny of the metropolitan ruler yields the ruled group’s suspicion against
the ruling group.

3.3

Second stage: After independence

In the second stage, the metropolitan ruler leaves the economy, and thecolony becomes independent. In this section, we investigate two situations.
In Section 3.3.1, we assume that Group 1 continues to be the ruling class andcontrols the government. As explained in the previous section, it is often thecase that the privileged class in the colonial period persistently has politicalpower after independence. We also assume that Group 2 has an investment
opportunity but Group 1 can tax the return of it ex-post. Group 1 can exploit
the resources of Group 2, just as it did in the first stage. This reflects theextractive institutions of African states persisting from the colonial period,
which is argued in Acemoglu et al. (2001). Group 2 determines the level ofinvestment expecting how proportion of the return of investment is exploited
by Group 1.
In Section 3.3.2, although Group 1 occupies the ruling position at the
beginning of the stage, Group 2 can overturn the government of Group 1
before Group 1 decides the level of exploitation of the resources of Group 2.
In both cases, the optimal strategy of Group 2 depends on the policies
adopted by Group 1. Since the optimal policy for Group 1 depends on its
degree of altruism, which is private information of Group 1, the equilibriumoutcome depends on the belief of Group 2. We formulate a strategic relationship between Group 1 and Group 2 in the form of a Bayesian game andassume that the belief of Group 2 is the one formed during the colonial period. We investigate how the equilibrium outcome is related to the level of
exploitation by the metropolitan ruler during the colonial period through thebelief of Group 2.

10

3.3.1

Investment

We consider the situation where Group 2 has an investment opportunity suchthat x amount of investment yields Rx amount of consumption goods.9 The
2
cost of the investment is given by c(x) = cx2 .
The government controlled by Group 1 taxes the income of Group 2 andtransfers the tax revenue to Group 1. Let t denote the tax rate, and assumet2
that the cost of taxation is given by 2∆y2 , where y2 is the income of Group
2 and ∆ represents the efficiency of taxation. 10
Then, the resource constraint of each group is given by:µ¶
t2
c1 = e1 + t −(e2 + Rx),
(6)
2∆
cx2
c2 = (1 − t)(e2 + Rx) −.
(7)
2
The timing of events is as follows: 11
1. Group 2 decides the amount of investment x.
2. Group 1 (the government) decides the tax rate.
As in the first stage, Group 1 (the government) maximizes the weighted
sum of the consumption of each group. Since the degree of altruism of Group1, β ∗ , is the private information of Group 1, this game is a Bayesian game,where the type (degree of altruism) of Group 1 is not known by Group 2.
We define the equilibrium by the pair of strategies (t(β, x), x) satisfying
the following conditions.
(a) For any x, the tax rate t(β, x) maximizes the payoff of Group 1 of typeβ given that Group 2 takes the strategy x.
(b) The strategy x maximizes the expected payoff of Group 2, which isevaluated based on the belief formed in the colonial period, given thatGroup 1 takes the strategy t(β, x).
9We ignore the investment opportunity of Group 1 for simplicity.
The cost of taxation is represented by the same function as the cost of private exploitation in the first stage. This is merely for simplicity and does not affect the resultsof this section.
11
We derive the same results if the decisions are made simultaneously because the optimal strategy of Group 1 does not depend on the actions of Group 2, as explained in thefollowing text.
1011

The equilibrium corresponds to the Perfect Bayesian Equilibrium in which
the belief of Group 2 about the type of Group 1 is the one formed in thecolonial period. Since Group 1 moves after observing the action of Group 2,
the strategy of Group 1 depends on both the type of Group 1 and the actionof Group 2.
After observing the amount of investment of Group 2, Group 1 of type βsolves the following maximization problem:
µ
¶
µ
¶
t2
cx2
max e1 + t −(e2 + Rx) + β (1 − t)(e2 + Rx) −t∈[0,1]
2∆
2
By the first-order condition, the interior solution of the above problem isgiven by:∀x t(β, x) = ∆(1 − β) ≡ t(β).

(8)

As in the colonial period, the optimal tax rate which Group 1 sets negatively
depends on the degree of altruism, β. Note that the optimal tax rate does
not depend on the action of Group 2.
The belief of Group 2 about the type of Group 1 was formed in thecolonial period (i.e. the distribution given by (4)). Since Group 2 expects
that Group 1 of type β sets the tax rate at t(β) regardless of the amount ofinvestment, the maximization problem for Group 2 is given by:
³
´
cx2
max
1 − E(t(β̂)) (e2 + Rx) −.
x
2
By the first-order condition, the amount of investment of Group 2 is givenby:³´
1 − E(t(β̂)) R
x=
c
µ
¶
R
τ̄ + τ
∗=1 − ∆(1 − β ) − τ +
.
(9)
c
2
Therefore, the equilibrium of the model is the pair of strategies satisfying (8)and (9).
From Equation (9), the amount of investment is decreasing in τ . Thisis because the large amount of exploitation by the metropolitan ruler makes
Group 2 underestimate the degree of altruism and decreases the level ofinvestment since Group 2 expects a high tax rate.
12

Proposition 1. The amount of investment of the ruled group after independence is decreasing in the amount of exploitation by the metropolitan ruler
during the colonial period.
To evaluate economic performance after independence, we consider theaggregate income of this economy, Y = c1 + c2 . From the resource constraintof each group, Y can be written as:µ¶
t2c
Y = e1 + 1 −(e2 + Rx) − x2 .
2∆2Therefore, Y is strictly concave in x.
In order to focus on the effect of exploitation by the metropolitan ruleron aggregate income after independence, we fix the tax rate at t = ∆(1−β ∗ ),which is chosen by Group 1 regardless of the amount of exploitation by the
metropolitan ruler.
Let x̃ denote the amount of investment that maximizes the aggregate
income under the tax rate t = ∆(1 − β ∗ ). Then, x̃ is given by:
µ
¶
∆
R
∗ 2
1 − (1 − β ) .
(10)
x̃ =
c
2
Let xe denote the amount of investment that is achieved in the equilibrium,then xe is given by:µ¶Rτ̄ + τe∗x =1 − ∆(1 − β ) +
−τ .
(11)
c
2
When the level of exploitation by the metropolitan ruler is sufficiently large sothat τ > τ̄ +τ
and the degree of altruism takes a plausible value (β ∗ ∈ (−1, 1)),2e
x is less than x̃, and the distance between xe and x̃ becomes larger as τ increases. The large level of τ makes the belief of Group 2 about β ∗ shiftdownward, reducing the expected return of investment for Group 2 and lowering the level of xe . The harsh policy of the metropolitan ruler during thecolonial era causes the ruled group’s distrust of the ruling group as explainedin subsection 3.2. The distrust causes the ruled group to form pessimistic
expectations for the future exploitation of the ruling group, and such expectations reduce the amount of investment. Since Y is strictly concave in x,
a larger distance between xe and x̃ yields a larger loss of aggregate income.
Therefore, the larger the amount of exploitation by the metropolitan ruler,
the larger the loss of aggregate income after independence.
13

3.3.2

RevoltIn this section, we analyze how the experience in the colonial period affects
political stability after independence. We focus on the situation where Group
1 continues to be the ruling class but Group 2 can challenge to overturn thegovernment controlled by Group 1 and establish a new government. As in
the previous sections, the group that controls the government can exploit
the resources of another group, and Group 2 takes over the belief from thecolonial period.
We consider the following game. First, Group 2 decides whether to revolt
against the government. If Group 2 decides to revolt against the government,Group 2 can overturn it with probability one and control the new government
they established.12 Since the revolution involves destructive action and leads
to disorder, it decreases the endowments of each group to µei , where µ ∈(0, 1). The new government can choose tax rate on the resources of Group
1. On the other hand, if Group 2 decides not to revolt, Group 1 continues
to control the government.
The equilibrium of this game can be defined in the same way as in the previous game, whereas the strategy of Group 2, x ∈ {R, P }, now represents the
choice of whether or not to revolt. The strategy R refers to a revolt against
Group 1 and the strategy P means subjection to the current government.
Group 1 with type β sets the tax rate that solves the following maximization problem:µ¶t2
max e1 + t −e2 + β(1 − t)e2 .
t∈[0,1]
2∆
From the first-order conditions, Group 1 with weight β sets the tax rate att = ∆(1 − β).
Therefore, when Group 2 does not revolt against Group 1, the expectedamount of consumption of Group 2, cP2 , can be written as a function of τ :³´
cP2 (τ ) = 1 − ∆(1 − E(β̂)) e2µ¶τ̄ + τ
∗= 1 − ∆(1 − β ) − τ +
e2 .
(12)
2
12

The results of this section do not change if we introduce uncertainty about the successof revolution.

14

Note that the expected amount of consumption when Group 2 does not
revolt is decreasing in the amount of exploitation by the metropolitan ruler.
This is due to the same reason discussed in the previous section. A large
level of exploitation by the metropolitan ruler yields suspicion of Group 2against Group 1, which makes Group 2 underestimate their expected amountof consumption.
When Group 2 revolts against Group 1, Group 2 establishes a new government and exploits the income of Group 1. The tax rate set by Group 2 isderived by solving the following problem:
µ
¶
³
t2 ´
max µ e2 + t −e1 ,t∈[0,1]
2∆
and the solution to this problem is t = ∆. Therefore, the amount of consumption of Group 2 when they choose to revolt against Group 1, cR
2 , is given
by:
µ
¶
∆
R
c2 = µ e 2 + e 1 .
(13)
2
P
P
Group 2 chooses to revolt against Group 1 if cR
2 > c2 (τ ). Since c2 (τ )P
is decreasing in τ , there is a threshold τ̃ which satisfies cR
2 = c2 (τ̃ ). Thatis, when the amount of exploitation by the metropolitan ruler during thecolonial period is τ̃ , Group 2 is indifferent between raising a revolt and not
raising a revolt.
P
From cR
2 = c2 (τ̃ ), τ̃ can be written as:µ¶∆ e1τ̄ + τ
∗−µ 1+.
τ̃ = 1 − ∆(1 − β ) +22 e2Then, the action of Group 2 in equilibrium is as follows• if τ > τ̃ , then Group 2 chooses to revolt against Group 1;• if τ < τ̃ , then Group 2 chooses not to revolt against Group 1 andendures the exploitation by Group 1.
Proposition 2. When the amount of exploitation by the metropolitan ruler
during the colonial period is sufficiently large, the ruled group revolts against
the ruling group after independence.
15

Proposition 2 showed that the ruled group rationally chooses revolt against
the government of ruling group if the ruled group has intense distrust of theruling group, which is caused by the harsh policy of the metropolitan ruler
during the colonial era. This is because the ruled group fears that the government of ruling group would extract a lot of resources of the ruled group.
The belief of ruled group, which is formed during the colonial period, affects
such expectation.

3.4

The conflicts in Rwanda, Burundi, and Zanzibar

The implication of the model gives us one possible explanation for the conflicts in Rwanda, Burundi, and Zanzibar. These nations were governed byindirect rule, and the colonial experience created the ruled group’s distrustof the ruling group, leading to a revolt against the ruling group just before
or after independence.
In Rwanda and Burundi, the German and Belgian colonial powers identified the Tutsis and Hutus as different groups although there were few culturaldifferences between the two groups before colonial rule, and the colonial powers treated the former as superior to the latter.13 The colonial state delegatedthe local authority to local chiefs and appointed the Tutsi elite to these posts.
The Tutsi elite occupying the posts of the chief abused their power to exploit
the inhabitants in their territory. As many researches have pointed out, thesecolonial policies led to the friction between the Hutus and Tutsis (Adekanye
1996; Newbury 1988; Mamdani 2001; Takeuchi 2004).
After World War II, criticism against colonial rule by European countries
arose in the United Nations, and the Belgian colonial authority reformed
the governance structure to enhance the political participation of indigenous
people. This political reform enhanced the political power of the Hutus
because they made up a majority of the indigenous people, and conflict
between the Tutsi elite and the Hutus became overt. In 1959, a Hutu subchiefin Rwanda was killed by a supporter of the Union Nationale Rwandaise,
which was a political party representing the Tutsi elite, triggering widespread
violence by the Hutus toward the Tutsis. Although this turbulence was shortlived, it drove many Tutsi elite to escape to neighboring countries. After this13

The boundary between the Tutsis and Hutus was not clear before colonial era, and,in some regions, people were unconscious of the identity of the Tutsi or Hutu (Takeuchi2004). Adekanye (1996) also stated that there were many cultural elements shared by theTutsis and Hutus before the colonial era.

16

period of political instability, the administrative structure dominated by theTutsi elite changed completely, and the Hutu elite seized political power
following independence (Takeuchi 2004). In Burundi, the rule by the Tutsi
elite continued after independence. The Hutus attempted to revolt against
the rule by the Tutsi several times, but the revolts were repressed severely
by the government (Adekanye 1996; Uvin 1999).
The postcolonial history of Zanzibar is similar in structure to the experience in Rwanda and Brundi. In Zanzibar, the Arabs ruled over theindigenous Africans from the 17th century, although the rule was nominaland geographically restrictive during the majority of the precolonial period.
The superiority of the Arabs over the Africans was reinforced under British
rule after the 19th century (the formal British rule prevailed since 1890).
The relationship between the Arabs and Africans became more hierarchical,
and the indigenous authorities were replaced by Arab officials. Thus, theautonomy of non-Arab indigenous groups was very restricted in the colonial period. Zanzibar achieved independence in 1963. At first, the Zanzibar
Nationalist party (ZNP), which represented the Arabs, controlled the government with the Zanzibar and Pemba People’s party (ZPPP). Immediately
after independence, military coup by the Africans occurred, the government
was overthrown, and the Arabs were eliminated from the country (Newbury1983).
These cases are alike in that the metropolitan ruler gave superiority to
one group (Group 1 in the model) over the other group (Group 2 in themodel) and the ruled group revolted against the ruling group just before orafter independence. In these cases, the postcolonial conflict had its rootsin the colonial experience. The model presented in this paper can allow for
an interpretation of these cases as the result of rational choice based on the
belief that is endogenously linked to the colonial policy of the metropolitan
ruler. The Hutus in Rwanda and Burundi and Africans in Zanzibar formed
pessimistic expectations for the policy of post-independence government of
the ruling group due to the colonial experience, and such expectations led toa revolt against the ruling group.

4

Conclusions

Recent empirical studies show an important connection between the historyof colonial rule and economic development after independence. In this paper,17

we developed a model to analyze this connection in African countries focusing
on the fact that many African countries were ruled by indirect rule during
the colonial era. Under indirect rule, the metropolitan ruler divides theindigenous people into a privileged ruling group and an unprivileged ruledgroup. The ruling group deprives the resources of the ruled group for boththemselves and the metropolitan ruler. Therefore, the ruled group cannot
observe how its deprived resources are divided between the metropolitan ruler
and the ruling group. Since the ruled group infers the degree of altruismof the ruling group after observing the total amount of deprived resources,
large levels of exploitation by the metropolitan ruler yield the ruled group’s
distrust of the ruling group. We showed that such distrust among indigenous
groups could be a cause of underdevelopment and political instability inpostcolonial Africa. Interacting with poor institutions of postcolonial African
states, the expectation of the ruled group that the elite, who retain politicalpower from the colonial era, will extract their profit decreases the amountof investment by the ruled group. In some cases, such an expectation could
trigger a revolt of the ruled group against the ruling group. The model
presented here provides one possible explanation for the conflicts in Rwanda,
Burundi, and Zanzibar, where the postcolonial conflict was rooted in thecolonial experience.
In this paper, we assumed that independence is unexpected by the agents.
Since the consolidated authority of colonial states was unchallenged before
World War II, as stated in Young (2004), this assumption would be plausible
for the period before World War II. After World War II, however, independence could be expected as stated in Young (2004). We still make thisassumption for the following reasons. 14
First, since the period where independence is unforeseeable makes up
the majority of colonial era, the legacies of this period are very important.
The foreseeability of independence matters only through the formation of
the beliefs of indigenous people in our model. Although our model does notdescribe the the formation of beliefs in a dynamic manner, it will take a lot
14

Even if the independence is expected to the ruling group, the key results of this paper
do not change when the ruling group is myopic. In the first stage, the myopic agent thinks
little of the payoff in the next stage, so the expectation of independence has little effecton the action in the first stage. By similar logic, assuming that the agents in the second
stage are children of the agents in the first stage and that the children take over the degreeof altruism and belief from their parents, who are assumed to have no altruism for theirchildren, we retain the main results of this paper.

18

of time for beliefs to change in the real world. If change in beliefs takes a
lot of time to change, the experience before WWII would have a dominant
effect on the beliefs of indigenous people in the postcolonial period, even if
the interaction among indigenous groups after WWII has some effects on
beliefs. This is because the former period is longer.
Second, the assumption that independence is unexpected by the agents
allows us to show a very simple and clear mechanism. Incorporating theinteraction between indigenous groups during the period where independence
is foreseeable makes the analysis of this paper complicated. Of course, we
do not think that the period after World War II, where independence isforeseeable, is unimportant, and analysis of the legacies of this period is left
for future work.

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