New Perspectives on the First Wave of Globalization.

• Author: Meissner, Christopher M.

The first "Great Wave of Globalization," during the late 19th and early 20th centuries, witnessed a historically unprecedented rise in spatial economic integration. Between 1850 and 1913, transportation costs plummeted, information flows accelerated, tariffs fell, trade treaties such as free trade agreements with unconditional most-favored-nation clauses and treaty ports proliferated, and empires expanded. In addition, a set of global financial intermediaries flourished, migrants flowed to previously unsettled regions in unprecedented numbers, and economic and political stability was largely the norm.

Unsurprisingly, many commodity prices converged and the export share of total production increased dramatically, doubling or tripling in many small, open economies between 1850 and 1914. In addition, new markets opened up to international trade and previously unavailable varieties of goods became accessible. Patterns of specialization and production processes were transformed. All of these forces significantly affected the living standards of those participating. Modern economic growth, meaning sustained rises in the standard of living, became the new norm. Social and political transformations also accompanied this episode of great integration.

My research, in collaboration with Michael Huberman, David Jacks, Dan Liu, Dennis Novy, and Kim Oosterlinck, seeks to shed further light on the causes and consequences of the international trade boom between 1870 and 1914. How much did trade costs actually fall in this period of globalization? What fraction of the rise in trade flows can be explained by the decline in trade costs? What was the relative contribution of geography, policy, and technology in explaining the first wave of globalization? What impact did trade costs and trade integration have on welfare and then on institutional and policy outcomes such as labor standards or the level of democracy?

To help answer these questions we have digitized and compiled a large amount of historical data from national data sources covering bilateral trade flows, GDP, gross production, and many other geographic and policy variables. Comprehensive bilateral trade data were recorded in the 19th century by national authorities and colonial powers, since a large fraction of government revenue came from taxes on international trade. Moreover, as I will detail below, not only can we make use of aggregate bilateral trade data, but economic historians are now able to rely on bilateral, product-level trade flows which provide greater granularity and deeper insight into the mechanics of the first wave of globalization. While research is only just beginning as regards the latter, these data will allow us to gain a greater understanding of forces driving globalization and its connections to economic growth, both in industrial leaders and their followers. Such questions potentially have great relevance today both to developing countries and to leading countries that are being strongly affected by globalization. This brief survey discusses what emerges when we combine these data sets and analyze them with the help of trade theory and modern empirical methods.

Trade Costs and the Determinants of Globalization

Trade costs can be broadly defined as the resource costs of shipping and trading commodities across international borders. When such trade is costly, foreign demand for domestic goods is assumed to be lower than it would be in the absence of such costs. What role did these costs play in explaining the growth of international trade and the types of goods traded during the first globalization? Especially important is understanding how much trade costs mattered relative to other determinants, such as economic growth and comparative advantage.

Previous work in economic history has emphasized the rapid decline in transportation costs and the fall in...