The legacy of nineteenth century treaties on the current trade of Chinese cities

We examine the effect of treaty linkages established between Chinese cities and foreign countries during the nineteenth century on China's trade today. We hypothesize that these historical arrangements created relationship-specific capital that continues to facilitate trade. In the full sample of bilateral trade between 335 cities and 212 countries, there are significant linkage effects. However, ensuing analysis indicates that greater trade among cities and countries who are linked by treaties largely reflects the propensity of higher income partners to trade more with each other. These findings underscore the importance of controlling for trade complementarity related to the level of development of trading partners in cases where lack of time-series variation in the key explanatory variable prevents inclusion of bilateral fixed effects.