/The imperial roots of global trade

The imperial roots of global trade


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 imagined.” William J. Bernstein in A Splendid Exchange (2008)

The greatest expansions of world trade have tended to come not from the bloodless tâtonnement 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 strand of literature in economics. For instance, Oto-Peralias and Romero-Avila (2016) show how the Reconquista – 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.

In this column, we summarise our new research (Gokmen et al. forthcoming) which shows that the rise and fall of empires throughout history, from the Afsharid Dynasty to the British Empire, still influences world trade. We also introduce a new and freely available database on the historical depth and reach of world empires. 

Why would empires still matter for trade today?

Throughout history, many empires were essentially about facilitating trade. For instance, 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 instances of how facilitating trade was central to empires.  The conquests of the Mongol Empire, for example, stabilised long-distance trade across Central Asia during a century known as Pax Mongolica. The Byzantine Empire organised trade across the Mediterranean and the Black Sea using imperial monopolies, strict controls, and written trade agreements known as chrysobull. Perhaps even more obvious is the blend of trade, plunder, and settlement associated with colonial empires. Colonial imperialism is indeed often based on the idea that trade flourishes only under a harmonised polity. 

We can 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, languages, religions, and legal systems. This led to the accumulation of imperial capital such as roads, common legal systems, commercial diasporas, and common languages or religions.1 The Byzantine Empire, for example, played a large role in the spread of Roman law which still influences many legal systems today, and in the cultural spread of orthodox Christianity throughout the Byzantine Commonwealth, from modern-day Greece to southwestern Russia. The formation of imperial capital may also come from the act of trading itself. Jha (2013) shows 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.

Measuring imperial capital

To empirically study the legacy of empires, we collect novel historical data from a wide array of sources on the territories controlled by 168 empires, from the Achaemenid Empire to the Yuan and Zand Dynasties. Our dataset covering 5,000 years of imperial history, as well as the list of sources, is publicly available at http://www.wnvermeulen.com/empires.

We create an imperial capital measure at the country-pair level. Assuming that imperial capital grows between two countries when they are both controlled by the same empire but also depreciates with time, our measure takes into account all imperial history by considering years in and years since all common empires. Our measure can be thought of as a historically grounded indicator on cross-state institutional development, and complements the state-history index of Bockstette et al. (2002) and Borcan et al. (2018). We also build a measure of deep imperial capital which depends on three characteristics of empires: a centralised administration, a centralised religion, and a monopoly on coin minting. We also look specifically at Metropole imperial capital, which only accumulates between countries when one of the two is the administrative centre of the empire.

Figure 1 illustrates the evolution of these different measures of imperial capital between Egypt and Iraq. The two countries have been part of many joint empires over the last 3,000 years, including the Neo Babylonian Empire, the Umayyad Caliphate, and the Ottoman Empire. The red solid line illustrates our baseline measure of imperial capital. It shows how imperial capital increases in times of common empire, but also depreciates over time. The bars show the periods of common empire, and their height captures the number of deep empire characteristics. Since the metropole of the Ottoman empire, present-day Turkey, was neither in Egypt nor in Iraq, Metropole imperial capital does not increase during that empire. The slow erosion of imperial capital shows how it can persist over time and still influence trade today.

Figure 1 Imperial capital between Egypt and Iraq

Notes: Example of imperial capital for two countries, Egypt and Iraq. Imperial capital grows by one unit for each year that the two current day countries are, at least partially, covered by a common empire. Capital depreciates continuously by 0.1% per year, which is roughly 5% per 50 years. The deep imperial capital line differentiates capital accumulation using three empire characteristics: a centralised administration, a centralised religion, and a monopoly on coin minting. Each characteristic gives an imperial capital amount of 0.33 per year, with the maximum of 1 for all three characteristics. The Metropole line takes into account only the years when one of the two countries is considered the metropole, or the administrative centre, of the empire.

How imperial capital affects trade

We introduce our measure of imperial capital into a gravity model to estimate its relationship with trade today. The gravity model of trade links trade between two countries to the geographic distance between them and to other bilateral trade costs such as diverging institutions or cultures (Head and Mayer 2013). Importantly, to isolate the effect of imperial capital from other geographic factors – such as mountains, deserts or large water bodies – that may affect both past empire expansions and today’s trade patterns, we account for a comprehensive measure of geographic barriers. To do so, we calculate the number of hours it would take a human to travel an optimal route between two countries, to avoid mountains and rivers for example, à la Omer Ozak’s (2010) Human Migration Index, and control for it in our regressions.

We find that long-gone empires have indeed left their mark on today’s trade patterns. A 10% increase in imperial capital is associated with an increase in bilateral trade of at least 1.15%. Doubling imperial capital corresponds to an increase in trade of around 10%. 

We find that deep imperial capital, accumulated during empires that are particularly conducive to trade-enhancing harmonisation, has even more explanatory power than our baseline measure of imperial capital. However, we find that it is not only the relationships with the metropole that contributes to the accumulation of relevant imperial capital. Metropole imperial capital has a coefficient about half as large as that of our baseline measure of imperial capital.

Importantly, we also show that part (up to 50%) of the relationship between imperial capital and trade  is explained by historical bilateral affinity measures such as sharing a legal system, a language, or a religion. Thus, a common imperial heritage is part of the reason why countries share institutions and culture, and this, in turn, has a persistent effect on trade.

While researchers have highlighted the role of colonial history in current trade (Head et al. 2010), we document the influence of the entire universe of empires since 3,000 BC. When we explore the heterogeneous effects across colonial and non-colonial imperial capitals, we find that the latter matters almost as much in explaining today’s trade.

Conclusion

While there is much evidence that empires played an important role in shaping institutions and culture, we highlight how empires also shaped bilateral affinities between countries, and how these, in turn, influence world trade today, which we know is a major driver of economic growth (Feyrer 2009; Pascali 2017, Wahl 2016).

References

Bernstein, W (2008), A Splendid Exchange: How Trade Shaped the World, Atlantic Monthly Press.

Bockstette, V, A Chanda and L Putterman (2002), “States and markets: The advantage of an early start”, Journal of Economic Growth 7: 347-369.

Borcan, O, O Olsson, and L Putterman (2018), “State history and economic development: evidence from six millennia”, Journal of Economic Growth 23(1): 1-40.

Feyrer, J (2009), “Distance, Trade, and Income – The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment”, NBER Working Paper 15557. 

Findlay, R and K O’Rourke (2009), Power and Plenty: Trade, War, and the World Economy in the Second Millennium, Princeton University Press.

Gokmen, G, W Vermeulen , and P-L Vézina (forthcoming), “The imperial roots of global trade”, Journal of Economic Growth.

Head, K and T Mayer (2013), “What separates us? Sources of resistance to globalization”, Canadian Journal of Economics 46(4): 1196-1231.

Head, K, T Mayer, and J Ries (2010), “The erosion of colonial trade linkages after independence”, Journal of International Economics 81(1): 1-14.

Jha, S (2013), “Trade, institutions, and ethnic tolerance: Evidence from South Asia”, American Political Science Review 107: 806-832.

Oto-Peralias, D and D Romero-Avila (2016), “The economic consequences of the Spanish Reconquest: the long-term effects of Medieval conquest and colonization”, Journal of Economic Growth 21(4): 409-464.

Ozak, O (2010), “The voyage of homo-economicus: some economic measures of distance”, Unpublished manuscript.

Pascali, L (2017), “The wind of change: Maritime technology, trade, and economic development”, American Economic Review 107(9): 2821-2854.

The Economist (2008), “The greatest journey”, 17 July.

Wahl, F (2016), “Does medieval trade still matter? Historical trade centers, agglomeration and contemporary economic development”, Regional Science and Urban Economics 60 50-60.

Wahl, F (2017), “Does European development have Roman roots? Evidence from the German Limes”, Journal of Economic Growth 22(3): 313-349.

Endnotes

1 The concept of trading capital was introduced by Head et al. (2010), who show that despite a gradual deterioration of trade links, colonial links still explain part of today’s trade flows. They suggest that a form of trade-enhancing capital that depreciates slowly over time could explain this persistence.

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