The Imperial Roots of Global Trade

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1 INTRODUCTION, Modern life flows on an ever rising river of trade if we wish to understand its. currents and course we must travel up its headwaters to commercial centers with. names like Dilmun and Cambay where its origins can be sought and its future. William J Bernstein in A Splendid Exchange 2008, The greatest expansions of world trade have tended to come not from the bloodless. ta tonnement of some fictional Walrasian auctioneer but from the barrel of a. Maxim gun the edge of a scimitar or the ferocity of nomadic horsemen. Findlay and O Rourke in Power and Plenty 2007, Today s countries emerged from hundreds of years of conquests alliances and downfalls. of empires The long run persistence of such historical episodes has been the focus of a new. economic history literature 1 For example Oto Peral as and Romero A vila 2016 show how. the Reconquista i e the series of conquests that led to the fall of the last Islamic state in. Spain in the 15th century explains differences in Spanish regional economic development. today Another example is Wahl 2017 who argues that the persistence of Roman roads. explains part of the development advantage of the formerly Roman parts of Germany 2. The aim of this paper is to uncover how the rise and fall of empires over the last 5 000. years from the Afsharid Dynasty 2350BC 2150BC to the British Empire 1583AD 2000AD. See Michalopoulos and Papaioannou 2017 for a comprehensive collection of short essays on the long. shadow of history, Other examples include Acemoglu et al 2001 and Easterly and Levine 2016 who trace the role of. colonial institutions in explaining the prosperity of today s countries Nunn 2008 who shows that the. slave trade had long lasting damaging effects on African development and Grosfeld and Zhuravskaya 2015. who show that three vanished empires namely Russia Austria Hungary and Prussia had different religious. practices and ideals that persist in today s Poland See also Nunn 2009 and Spolaore and Wacziarg 2013. for reviews of this literature, still influence world trade To that end we collect novel data on 5 000 years of imperial.
history of countries construct a measure of accumulated trading capital between countries. and estimate its effect on trade patterns today 3, Trading capital can be thought of as networks and institutions that emerged during. empires to facilitate trade and that may outlive empires 4 Throughout history many empires. were essentially about trade facilitation For example in its review of Bernstein 2008 The. Economist 2008 explains how the Athenian Empire was established to secure food trade. The Athenians were driven by the dictates of trade to create first a powerful. navy and then an empire Low rainfall and a mountainous topography made. it impossible for farmers to produce enough grain for a growing and increasingly. city based population The Spartans and their allies looked west to Sicily but. the Athenians increasingly relied on access to the breadbasket of Pontus modern. Ukraine This in turn meant keeping open those narrowest of choke points the. Dardanelles to the Greeks the Hellespont and the Bosphorus Other states in. the region were just as dependent on the trade with Pontus and were therefore. prepared to contribute to the costs of Athenian naval operations Before long. this coalition of the willing evolved into the Athenian Empire. Findlay and O Rourke 2009 provide many other examples of how facilitating trade was. central to empires The conquests of the Mongol Empire for example stabilized long distance. trade across Central Asia during a century known as Pax Mongolica Other examples include. Economists have been trying to understand international trade patterns at least since Adam Smith. published The Wealth of Nations in 1776 A series of explanations from comparative advantage to economies. of scale and love of variety have been proposed and tested in the last 50 years see for example Davis 2000. Davis and Weinstein 2003 Chor 2010 A particularly robust empirical finding has been the gravity model. of trade which links trade between two countries to the geographic distance between them and to other. bilateral trade costs such as diverging institutions or cultures Tinbergen 1962 Head and Mayer 2014. The concept was introduced by Head et al 2010 who show that despite a gradual deterioration of. trade links following independence colonial empires still explain part of today s trade flows They suggest. that a form of trade enhancing capital or trading capital that depreciates slowly over time could explain. this persistence, the expansion of markets trade and specialization that occurred in China during the Song. Dynasty notably thanks to an extensive network of canals and waterways or the lucrative. trade in furs silver and silk between East and West that was made possible by the Vikings. taking control of the Russian river systems Perhaps even more obvious is the blend of. trade plunder and settlement associated with colonial empires The East India Company. initially only about the pursuit of trade opportunities was key to the creation of the British. Empire in India Mitchener and Weidenmier 2008 suggest that colonial empires doubled. trade within their controlled territories between 1870 and 1913 by lowering transactions. costs and by establishing preferential trade policies We can thus think of empires as. entities that facilitated trade within their controlled territories by building and securing. trade and migration routes and by spreading common norms religions and legal systems. This led to the accumulation of trading capital such as physical capital e g roads railway. lines or pipelines common institutions e g common legal systems business networks e g. commercial diasporas such as the Gujaratis in the British Empire or cultural capital e g. common language religion and trust, Using novel historical data on the territories controlled by 136 empires over the last. 5 000 years worldwide from the Achaemenid Empire to the Yuan and Zand Dynasties we. first create various trading capital measures at the country pair level 5 Our main measure. of trading capital takes into account all bilateral imperial history by considering years in. and years since all joint empires Assuming that imperial trading capital grows between. two countries when they are both controlled by the same empire but decays otherwise we. estimate trading capital allowing for a range of relative growth and decay rates We then. include these measures of trading capital into a gravity model to estimate its effect on trade. today and calibrate its growth and decay rates Importantly to isolate the effect of trading. capital from other geographic factors such as mountains deserts or large water bodies that. We scrape information on empires and their members from the Wikipedia list of empires This. information was confirmed and complemented with individual countries membership years from Running. Reality an on line application that maps the history of human civilization from 3 000BC to today Further. sources such as National Geographic were used to complement the list of empires. may affect both past empire expansions and today s trade patterns we calculate the number. of hours it would take a human to walk an optimal route between two countries a la O zak. 2010 Human Migration Index and account for it in our regressions. We find that there is a persistent effect of the trading capital of long gone empires on. trade today For example bringing the trading capital of Nigeria United Arab Emirates. to the level of Tunisia Iraq i e moving from the 25th to the 75th percentile among pairs. with non zero capital would increase their trade by 12 Our findings are similar when. we test alternative measures of trading capital such as a dummy indicating whether two. countries were ever part of the same empire the number of years the two countries were in. joint empires and the number of joint empires they have been part of For example imports. from countries that were once in a common empire are on average 70 larger than from. other countries Crucially we find that trading capital most likely builds up faster than. it depreciates Our optimization exercise suggests that a reasonable calibration of trading. capital involves growth by around 4 a year during times of a joint empire and depreciation. by 2 at other times A long lasting effect of defunct empires can hence be thought of as. long run persistence in trade patterns and as a slow decay of trading capital. Moreover we investigate potential institutional and cultural mechanisms such as sharing. a legal system a language a religion or genes that may explain our main findings We show. that part of the effect of trading capital on trade up to 50 is mediated by these historical. bilateral affinity measures Thus a common imperial heritage is part of the reason why. countries share institutions and culture and why this in turn has a persistent effect on. trade Lastly we explore the heterogeneous effects across colonial and non colonial trading. capitals We verify that colonial empires do not drive our results and that non colonial. empires of the past matter at least as much in explaining today s trade. Although some researchers highlight the role of colonial history in shaping today s trade. patterns Head et al 2010 the influence of the entire universe of empires including. non colonial ones since 3 000BC has not been studied empirically before Unlike previous. studies we build an indicator of trading capital that accounts for both time in and time. since a joint empire and that goes beyond colonial empires Our measure of trading capital. suggest that long gone empires have effects on trade that are even more persistent than that. of recent colonial empires This is likely due to the fact that older more historical empires. have played an important role in shaping institutions and culture. Our results suggest that trading capital plays a role in reducing trade costs that inhibit. international trade While infrastructure such as roads Michaels 2008 railways Donaldson. 2010 or telegraphs Steinwender 2013 do promote trade Head and Mayer 2013 point. out that transport costs and tariffs do not account for most of the trade costs associated. with borders and distance Instead they point to cultural and informational frictions as the. main culprits and this is why cultural similarity Felbermayr and Toubal 2010 Gokmen. 2017 and transnational networks Rauch and Trindade 2002 are so important to trade. Indeed the latter facilitate trade by reducing contract enforcement costs and by providing. information about trading opportunities Rauch 2001 Trading capital accumulated during. empires could thus play a similarly important role in making trade happen today. All kinds of imperial formal and informal institutions as well as infrastructure projects. might play a role in the growth of trading capital and thus in shaping today s trade. patterns For example historical Habsburg Empire regions have higher current trust and. lower corruption than neighboring regions most likely due to the empire s well respected. administration Becker et al 2015 and countries of the Habsburg Empire trade significantly. more with one another than what is predicted by gravity Rauch and Beestermoller 2014. Similarly Grosjean 2011 shows that Ottoman Habsburg Russian and Prussian empires. explain social trust differences across countries Imperial road networks might also shape. today s trade pattern Volpe Martincus et al 2017 show that roads from the pre columbian. Inca Empire explain today s roads locations which have a significant impact on Peruvian. firms exports Pinna and Licio 2017 argues Roman roads have a similar impact on Italy s. foreign trade The formation of trading capital may also come from the act of trading itself. For example Jha 2013 showed that local institutions that emerged to support inter ethnic. medieval trade have resulted in a sustained legacy of ethnic tolerance in South Asian port. towns More examples of the emergence of such formal and informal trade enhancing. institutions can be found in Greif 2006 A few studies on the role of history in world. trade have also suggested that historical events that allow costs to be sunk can be associated. with a persistent level of trade For example Eichengreen and Irwin 1998 and Campbell. 2010 have showed that current trade flows are a positive function of trade flows 50 or 100. years ago even after controlling for gravity While there is no comprehensive data on world. trade in ancient times6 to test for very long run persistence in this way the history of empires. allows us to find traces of trading capital, Another way to understand the significance of the empire effect is to view our constructed. trading capital as a cross state index complementing the state history index introduced by. Bockstette et al 2002 Putterman and Weil 2010 derive a time discounted measure. based on this index to explain comparative economic development Similarly we use a. time discounting strategy to derive our cross state trading capital index While the state. history index captures the history of individual state institutions in a location or characteristics. of people who used to live there at a certain point in time ours captures common formal and. informal institutions and a common heritage between states Therefore our trading capital. can function as a historically grounded indicator that explains differences in bilateral state. William J Bernstein in A Splendid Exchange 2008 The greatest expansions of world trade have tended to come not from the bloodless t atonnement of some ctional Walrasian auctioneer but from the barrel of a Maxim gun the edge of a scimitar or the ferocity of nomadic horsemen Findlay and O Rourke in Power and Plenty 2007

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