Working Paper: CEPR ID: DP17482
Authors: Kerem Cosar; Roberto Bonfatti
Abstract: The last two centuries witnessed the rise and fall of empires. We construct a model which rationalises this in terms of the changing trade gains from empires. In the model, empires are arrangements that reduce trade cost between an industrial metropole and the agricultural periphery. During early industrialisation, the value of such bilateral trade increases, and so does the value of empires. As industrialisation diffuses, and as manufactures become more differentiated, trade becomes more multilateral and intra-industry, reducing the value of empires. Our results are consistent with long-term changes in income distribution and trade patterns, and with previous historical arguments.
Keywords: international trade; empires; comparative advantage; optimal country size
JEL Codes: F1; F5; N7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rise of empires during early industrialization (N93) | increased value of bilateral trade between industrialized and agricultural regions (F14) |
| increased value of bilateral trade between industrialized and agricultural regions (F14) | decrease in the value of empires (F54) |
| increased product differentiation in manufacturing (L69) | breakup of empires (F54) |
| increased intraindustry trade (F12) | undermining of the traditional role of empires (F54) |