The effects of market integration: trade and welfare during the first globalization, 1815-1913

David Chilosi and Giovanni Federico

Economic History Working Papers from London School of Economics and Political Science, Department of Economic History

Abstract: We investigate the effect of the decline in trade costs on trade, terms of trade and welfare of Europe (the United Kingdom and the Netherlands) and three large exporters (India, Indonesia and the United States) during the first globalization using a ‘bottom-up’ approach. We measure total route and product specific trade costs for a representative sample of commodities with price gaps predicted by observed trade costs. We use a simple microeconomic model and we buttress our findings with additional econometric testing. We find that price convergence accounted for almost all the improvement in terms of trade of producing countries and increased significantly welfare in both producing and especially consuming countries, while its positive effect on bilateral trade was often swamped by other factors. The findings caution against the substation of proxies to actual measures of trade costs.

Keywords: market integration; trade costs; terms of trade; trade; welfare; first globalization (search for similar items in EconPapers)
JEL-codes: F14 F15 F43 N70 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2016-04
New Economics Papers: this item is included in nep-int, nep-pke and nep-sea
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