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JournalofSoutheastAsianStudies,32(2),pp173-193June2001.PrintedintheUnitedKingdom.©2001TheNationalUniversityofSingaporeOpiumandEmpire:SomeEvidencefromColonial-EraAsianStockandCommodityMarketsByWarrenBaileyandLanTruong*Onthebasisofanewdatabaseofstockandcommodityprices,alongwithmeasuresofgovernmentrevenues,commodityexportsandimmigration,thearticleassessestheimpactoftheopiumtradeontheeconomiesofcolonialMalaya,theNetherlandsIndiesandChinafrom1873to1911.StockreturnsforafewMalayanindustriesrelatedtointernationaltradearesignificantlycorrelatedwithopiumpricechanges,asarepricesforlabour-intensive,Chinese-dominatedexportcommoditiessuchastinandgambier.However,opiumpricechangesexplain,atmost,onlyasmallfractionofthebehaviourofstockandcommodityprices.Onbalance,stockandcommoditymarketsascribedonlysecondaryimportancetoupsanddownsintheopiumtradeasmeasuredbythepriceofthedrug.IntroductionUnderstandingthenatureandimpactofcolonialismcontinuestobeimportanttounderstandingthehistory,politicsandeconomicsofAsia.Theeconomicandpoliticalinstitutionsandconditionsthatevolvedundercolonialrulecontinuetocolourtheworkingsoftoday’smodernAsianstates.OneofthemostpeculiarandinterestingaspectsofcolonialisminAsiawastheopiumtrade.OpiumwasalreadyanimportantcommodityinAsiawhenEuropeansfirstvisitedSoutheastAsianandChineseports.EuropeansstartedtoshipopiumtotheFarEasttocompetefortheconsiderableprofitsassociatedwiththetradeandtobarterforthesilks,teasandspicesthatoriginallymotivatedtheirtravelstoAsia.AstheEuropeanpresenceinAsiaevolvedintoextensivecolonialpossessions,theimportofTurkishandIndianopiumbecameamajoreconomicactivity.Atcertainpointsinthelatenineteenthandearlytwentiethcenturies,forexample,opiumtaxrevenuescomprisedmuch,ifnotmost,ofcolonialgovernmentbudgetsinMalaya,theNetherlandsIndiesandFrenchIndochina.Thesignificanceoftheopiumtradecontinuestobedebated.Therefore,thepurposeofourarticleistooffersomeempiricalevidenceontheimportanceofopiumtocolonial-eraAsia.Weorganiseourworkaroundtwoalternativehypotheses.IfthedesiretoprofitfromsellingopiumwastheprimaryreasonforcolonialisminSoutheastAsiaandChina,changesinthehealthoftheopiumtradewouldhaveasignificantimpactonthegeneralhealthofthecolonialeconomies.Therefore,173*WarrenBaileyisanAssociateProfessorofFinancewiththeJohnsonGraduateSchoolofManagementatCornellUniversity(SageHall,Ithaca,NY14853-6201,USA).Hise-mailaddressis[WBB1@cornell.edu].LanTruongisaPh.D.CandidateintheDepartmentofGovernmentatCornellUniversity.Heraddressis1614-DBelmontSt.NW,Washington,DC20009,USA,andhere-mailaddressis[ljt5@cornell.edu].Acknowledgement:TheauthorswouldliketothankKiridaBhaopichitr,MelanieOrhant,AllenReidy,CarlTrocki,OliverWolters,seminarparticipantsatCornell’sSoutheastAsiaProgramme,andespeciallyMichaelMontesanoforhelpfuldiscussions,commentsonearlierdraftsandotherassistance.WethankSerenaAgora-Menyang,JamesChan,JulieGoking,GustavoGrullon,BlairKanbarandJaneWuforresearchassistance.ourfirsthypothesisisthatopiumwasaprincipaldrivingforceintheseeconomies.Alternatively,themanagementandtaxationoftheopiumbusinessrepresentedmerelyoneofmanyaspectsofadministeringtheAsiancolonies,justasmoderngovernmentsareinvolvedinregulatingandtaxingtobacco,alcoholandgambling.Theopiumtradewouldreactto,ratherthancause,thebroadereconomicfactorsthatdrovethedemandforopium.Therefore,oursecondhypothesisisthattheopiumtrademerelyreflectedandfollowedmorefundamentaleconomicconditions.Ourtwocompetinghypotheseshaveanumberofdistinctimplicationsthatwedetailbelow.Webaseourtestsonauniquedatabaseofstockandcommoditypricesspanningtheperiodfrom1873to1911,whenlegal,unregulatedopiumdealingceased.FromSingapore’sprincipalbusinessnewspaper,TheStraitsTimes,wehavecollectedmonthlymarket-determinedpricesfortin,rubber,pepper,otherlocalcommoditiesand,mostimportantly,foropiumitself.ThisnewspaperandothersalsosupplymonthlystockpricesfromMalaya,NetherlandsEastIndiesandEuropean-administeredareasofChina.Oursampleincludescompaniesthatshippedtheopium;transportedthelargelyChineseworkforcewhoconsumedit;financedtheopiumtraders;andharvested,processedandtransportedmineralandagriculturalcommoditiesproducedbyopium-usingworkers.WealsocollectedannualdataonmovementsofChinesemigrantworkerstoSoutheastAsia,colonialgovernmenttaxrevenues,andcommodityproductioninMalaya.Collectively,thesedataallowustomeasuretheeffectofopiumonmanydimensionsofcolonialeconomicactivitywithconsiderableprecision.Thearticleisorganisedasfollows.Thefirstsectionbrieflysketchesthehistoricalsetting.Thefollowingsectionspresentourtestablehypothesesandoutlinethedatasetandempiricaltestsweconduct.Thencometheresultsofthetests,followedbyasummaryanddiscussionofimplications.HistoricaloverviewIndiaandopium:exportcommoditytotheEastTheopiumtradedevelopedrapidlygiventhedesireofEuropeanmerchantstoexchangeopiumforhighlyprizedFarEasternproducts.BeforeBritishdominationoftheopiumtrade,small-scalePortugueseandDutchtraderswereregularlyshippingopiumtoMacau,Canton,JavaandtheSpiceIslands.1WiththeextensionofBritishinfluenceinAsia,theEastIndiaCompany(EIC)soughttocontrolcu