Trade networks and colonial trade spillovers

This paper provides new empirical evidence regarding the formation of international trade networks. We test whether trade experience in a given country can generate new trade opportunities with other countries, and investigate the role played by geographical and political factors. We address the issue of the endogeneity in the formation of trade networks by using the experience of ancient trade linkages between former colonies and their former colonizers (colonial trade linkages). We firstly show, using aggregate trade data, that former colonies have more trade with countries being geographically more proximate or having more trade with the former colonizer (colonial trade spillovers). We then show that the microeconomic dynamics of former colonies’ exports and imports at the product level is significantly influenced by the geographical proximity between trade partners and the former colonizer, or their degree of economic integration. These results are consistent with the predictions from models of trade networks (Chaney2014). Overall, they confirm that the microeconomic dynamics of trade contribute to shape the cross-sectional distribution of aggregate trade flows across countries.