Although many modern studies find large and significant effects of prior colonial status on bilateral trade, there is very little empirical research that has focused on the contemporaneous impact of empire on trade. We employ a new database of over 21,000 bilateral trade observations during the Age of High Imperialism, 1870-1913, to quantitatively assess the effect of empire on trade. Our augmented gravity model shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire. The positive impact that empire exerts on trade does not appear to be sensitive to whether the metropole was Britain, France, Germany, Spain, or the United States or to the inclusion of other institutional factors such as being on the gold standard. In addition, we examine some of the channels through which colonial status impacted bilateral trade flows. The empirical analysis suggests that empires increased trade by lowering transactions costs and by establishing trade policies that promoted trade within empires. In particular, the use of a common language, the establishment of currency unions, the monetizing of recently acquired colonies, preferential trade arrangements, and customs unions help to account for the observed increase in trade associated with empire.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13765.
Length: Date of creation: Jan 2008 Date of revision: Handle: RePEc:nbr:nberwo:13765
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Find related papers by JEL classification: F15 - International Economics - - Trade - - - Economic Integration F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913 N40 - Economic History - - Government, War, Law, and Regulation - - - General, International, or Comparative
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Francisco Alcalá & Antonio Ciccone, 2001.
"Trade and Productivity,"
Economics Working Papers
580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
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