In this recent publication in the Journal of International Economics, Roberto Bonfatti argues that large changes in trade patterns may lead to a change in the shape of empires, through secession. In particular, if the world outside of the empire switches from being a trade competitor of the colony to being less of a trade competitor, or a trade partner, the colony becomes more likely to secede. The paper argues that this mechanism was at play in the decision by the Latin American colonies to rebel against Spain in the early 19th century, and by the US North to rebel against Britain after the Seven Years War (1756-1763). The mechanism has important implications for the debate on the economic legacy of colonial empires.
The pre-existing literature on trade and the optimal size of nations has argued that countries tend to be smaller when the cost of trading internationally is smaller, as the need to maintain a large domestic market decreases. These models typically consider a very symmetric trade environment, where each good is produced and exported by one country only, and the only thing that can change over time is the cost of trading internationally versus domestically. Instead, trade tends to be very asymmetric: many goods are simultaneously produced by competing exporting countries, and the identity of who exports and who imports can easily change over time.
Roberto Bonfatti argues that large changes in the pattern of trade may also lead to changes in the equilibrium size of countries. The paper focuses on colonial empires, and on revolution. It develops a model where a colony trades raw materials for manufactures with the mother country and a foreign country, which has its own empire also exporting raw materials. The colony can stage a successful revolution, however this comes at the cost of trade disruption with the mother country. In this environment, the attractiveness of revolution comes to depend on the mother country’s trade policy in the absence a revolution, and on the foreign country’s trade policy should revolution occur. It shows that if the foreign country is a trade competitor of the colony (because it is not industrialised, or it has a large imperial supply of raw materials), then trade policy within the empire is relatively benign, but trade policy outside the empire is relatively hostile. Then, revolution is costly, and unlikely to happen. The exact opposite is true if the foreign country is less of a trade competitor, or if it is a trade partner or the colony (because it is highly industrialised, or it has a scarce imperial supply of raw materials).
Bonfatti, Roberto. "The Sustainability of Empire in a Global Perspective: the Role of International Trade Patterns", Journal of International Economics, Vol. 18, pp. 136-156 (June 2017).
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Posted on Tuesday 12th September 2017