Santa Clara University

The Value of Silver in an Age of Gold

(Working paper; not for citation or quotation) 
Empirical research has drawn attention to the effects of policies, institutions, and geography on trade flows. Numerous studies utilizing the gravity model framework (with data from different time periods and for different country samples) have reported on the costs of trade-policy frictions, the tyranny of distance, and the benefits of being part of a common currency area, monetary regime, or empire.

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Although there is a large literature on the effects of membership in the gold club on bilateral trade flows, the literature on the silver standard and its effects on trade flows during the first era of globalization (1870-1913) is comparatively underdeveloped.

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To shed light on how the silver standard affected trade during the first era of globalization, we construct a new database of over 40,000 observations of bilateral exports flows from 1870-1913. The database, collected from primary sources, is nearly 20 times larger than existing databases for this sample period. We then use this database to estimate gravity models of trade to measure two channels through which silver may have impacted bilateral exports: (1) network externalities (reduced exchange rate volatility and transaction costs) and (2) relative price or competitiveness effects.