Back to the Future: International Trade Costs and the Two Globalizations

This article provides an assessment of the nineteenth century trade globalization based on a systematic collection of bilateral trade statistics. Drawing on a new data set of more than 1.9 million bilateral trade observations for the 1827-2014 period, we show that international trade costs fell more rapidly than intra-national trade costs from the 1840s until the eve of World War I. This finding questions the role played by late nineteenth century improvements in transportation and liberal trade policies in sparking this First Globalization. We use a theory-grounded measure to assess bilateral relative trade costs. Those trade costs are then aggregated to obtain world indices as well as indices along various trade routes, which show that the fall of trade costs began in Europe before extending to the rest of the world. We further explore the geographical heterogeneity of trade cost dynamics by estimating a border effect and a distance effect. We find a dramatic rise in the distance effect for both the nineteenth century and the post-World War II era. This result shows that both modern waves of globalization have been primarily fueled by a regionalization of world trade.