The Effect of Empire :
In the Matter of Trade, the Impact Was Substantial
Kris J. Mitchener
Associate Professor of Economics
Back in the day when the sun never set on the British Empire, England — along with other European countries, and to a lesser extent the United States — was widely assumed to have reaped considerable economic benefit from their colonies. But were the economic effects of empire?
For more than a century that question has largely gone unanswered, in part owing to a lack of accumulated hard information to measure the impact of empire relationships on economic outcomes. Now Kris James Mitchener, associate professor of economics at the School of Business, has worked with a colleague to compile the information and reach a conclusion with respect to how empires impacted trade.
“Once we looked at the data and took into account many other influences, it turns out that being part of an empire had a very large effect on trade flows,” Mitchener observes. “On average, it doubled total trade relative to countries not in empires.”
Mitchener and Marc Weidenmier of Claremont McKenna College outlined their findings in a paper called “Trade and Empire,” which is forthcoming in Economic Journal, published by the Royal Economic Society.
In reaching a conclusion about empire’s positive impact on trade, Mitchener stresses that he is not advocating imperialism as a form of political organization and that the ultimate effects of empire on the development and growth of ex-colonies are likely ambiguous. Rather the researchers are simply attempting to unearth and evaluate economic relationships that have eluded scholars thus far. “We are collecting data to answer questions that previous scholars have not attempted to quantify. We let the data speak rather than imposing priors on what we expect the outcome to be,” he says.
Compiling the information in the first place was a daunting task. Mitchener and Weidenmier focused on the period from 1870-1913, which is generally considered the Age of High Imperialism. Fortunately for them, the British government at the time was an efficient bureaucracy and had compiled extensive statistical abstracts on its own trade and that of other countries, including neighboring European nations with colonies.
Unfortunately, those Board of Trade statistics were available only in hard copy in scattered locations, from Berkeley to Harvard, to various places in England. Mitchener says it took more than a year to hand-collect the information (along with supplementary data from France) and evaluate it. But in the end, they had trade data and other country or colony information on 21,000 different trade pairings, including 880 distinct country pairings, which reflected more than 90 percent of the global trade during this period.
Having this wealth of information enabled them to evaluate trade patterns within and without empires and to factor in other issues such as wars, currency unions, the gold standard, country size, distance, and various geographical indicators. While some of these also influenced trade in a statistically meaningful way, Mitchener says that empire was the most important institutional factor.
So why did empire increase trade? Their study highlights the importance of two channels, in particular. The colonial connection led to lower transaction costs via the creation of common currency areas within empires, the use of a shared language, and the development of lasting connections (social networks) among traders. Empires also established preferential trade agreements, which sometimes created favorable terms for trade within empires and discriminated against goods from other countries. Mitchener states that research related to his suggests that the colonial legacy continues to exert an influence on trade flows today.
Mitchener thinks the statistical information he and Weidenmier have compiled should provide a basis for other research into the economic relationships of the first era of globalization: 1870-1913. As part of the three-year National Science Foundation grant Mitchener received to work on this project and related research, he and his collaborators will put all their data online so that future scholars will be able to make use of the rich information they have collected.
“No one had ever tried to measure the contemporaneous effect of empire on trade,” Mitchener says. “Before we collected these data from archival sources, you couldn’t really properly answer this question. We were fortunate that British civil servants were so fastidious in originally compiling these data more than 100 years ago.”