Working Paper: CEPR ID: DP11040
Authors: Wolfgang Keller; Javier Andres Santiago; Carol Hua Shiue
Abstract: Uneven development within countries suggests that domestic trade frictions are important. Trade flows within a country, however, are rarely observed. We employ a new dataset on trade between fifteen Chinese treaty ports to examine the importance of domestic frictions around the year 1900. The distribution of welfare effects depends on each port's productivity and factor costs, China's economic geography as it influences trade costs, as well as the degree of regional diversity in production, which increases the potential gains from trade. We utilize this framework to quantify the size and distribution of welfare effects resulting from new technology and lower trade costs. Domestic trade frictions turn out to be substantial, far from the frictionless world that is commonly assumed. Moreover, geographic barriers loom large in shaping the welfare gains from technology improvements and trade cost reductions. We find, however, that an important explanation for why there was a limit to what could be gained through increased domestic trade was that the differences in productivity across regions ofChina in the 19th century were relatively low.
Keywords: 19th century; China; domestic trade; economic integration; welfare gains
JEL Codes: F1; N15; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shanghai's productivity increase (O49) | Shanghai's welfare increase (I38) |
| Shanghai's productivity increase (O49) | welfare gains in nearby ports (Ningbo, Chinkiang, Wuhu) (D69) |
| Shanghai's productivity increase (O49) | Tianjin's welfare decrease (I39) |
| Trade frictions (F19) | distribution of welfare gains from trade (F10) |
| Differences in productivity (O49) | overall welfare gains from trade (F10) |