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The Wind of Change: Maritime Technology, Trade, and Economic Development

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  • Luigi Pascali

Abstract

The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the introduction of the steamship in the shipping industry produced an asymmetric change in trade distances among countries. Before this invention, trade routes depended on wind patterns. The steamship reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and novel data on shipping, trade, and development, I find that (i) the adoption of the steamship had a major impact on patterns of trade worldwide; (ii) only a small number of countries, characterized by more inclusive institutions, benefited from trade integration; and (iii) globalization was the major driver of the economic divergence between the rich and the poor portions of the world in the years 1850-1900.

Suggested Citation

  • Luigi Pascali, 2017. "The Wind of Change: Maritime Technology, Trade, and Economic Development," American Economic Review, American Economic Association, vol. 107(9), pages 2821-2854, September.
    • Handle: RePEc:aea:aecrev:v:107:y:2017:i:9:p:2821-54
    Note: DOI: 10.1257/aer.20140832
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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