Lan Truong [*]
On the basis of a new database of stock and commodity prices, along with measures of government revenues, commodity exports and immigration, the article assesses the impact of the opium trade on the economies of colonial Malaya, the Netherlands Indies and China from 1873 to 1911. Stock returns for a few Malayan industries related to international trade are significantly correlated with opium price changes, as are prices for labour-intensive, Chinese-dominated export commodities such as tin and gambier. However, opium price changes explain, at most, only a small fraction of the behaviour of stock and commodity prices. On balance, stock and commodity markets ascribed only secondary importance to ups and downs in the opium trade as measured by the price of the drug.
Understanding the nature and impact of colonialism continues to be important to understanding the history, politics and economics of Asia. The economic and political institutions and conditions that evolved under colonial rule continue to colour the workings of today's modern Asian states. One of the most peculiar and interesting aspects of colonialism in Asia was the opium trade. Opium was already an important commodity in Asia when Europeans first visited Southeast Asian and Chinese ports. Europeans started to ship opium to the Far East to compete for the considerable profits associated with the trade and to barter for the silks, teas and spices that originally motivated their travels to Asia. As the European presence in Asia evolved into extensive colonial possessions, the import of Turkish and Indian opium became a major economic activity. At certain points in the late nineteenth and early twentieth centuries, for example, opium tax revenues comprised much, if not most, of colonial government budgets in Malaya, the Netherlands Indies and French Indochina.
The significance of the opium trade continues to be debated. Therefore, the purpose of our article is to offer some empirical evidence on the importance of opium to colonial-era Asia. We organise our work around two alternative hypotheses. If the desire to profit from selling opium was the primary reason for colonialism in Southeast Asia and China, changes in the health of the opium trade would have a significant impact on the general health of the colonial economies. Therefore, our first hypothesis is that opium was a principal driving force in these economies. Alternatively, the management and taxation of the opium business represented merely one of many aspects of administering the Asian colonies, just as modern governments are involved in regulating and taxing tobacco, alcohol and gambling. The opium trade would react to, rather than cause, the broader economic factors that drove the demand for opium. Therefore, our second hypothesis is that the opium trade merely reflected and followed more fundamental economic conditions. Our two competing hypotheses have a number of distinct implications that we detail below.
We base our tests on a unique database of stock and commodity prices spanning the period from 1873 to 1911, when legal, unregulated opium dealing ceased. From Singapore's principal business newspaper, The Straits Times, we have collected monthly market-determined prices for tin, rubber, pepper, other local commodities and, most importantly, for opium itself. This newspaper and others also supply monthly stock prices from Malaya, Netherlands East Indies and European-administered areas of China. Our sample includes companies that shipped the opium; transported the largely Chinese workforce who consumed it; financed the opium traders; and harvested, processed and transported mineral and agricultural commodities produced by opium-using workers. We also collected annual data on movements of Chinese migrant workers to Southeast Asia, colonial government tax revenues, and commodity production in Malaya. Collectively, these data allow us to measure the effect of opium on many dimensions of colonial economic activity with considerable precision. …