2017/09/01 by Luigi Pascali · 257 citations
Economics, Econometrics and Finance · Social Sciences · #Global trade and economics #Culture, Economy, and Development Studies #Historical Economic and Social Studies #Globalization #International trade #Economic integration #Economics #International economics #Economic globalization #Business #Market economy
paper · pdf · doi:10.1257/aer.20140832
published in American Economic Review 107(9), 2821-2854 (American Economic Association)
openalex publication_date 2017/09/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/14
The 1870–1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the introduction of the steamship in the shipping industry produced an asymmetric change in trade distances among countries. Before this invention, trade routes depended on wind patterns. The steamship reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and novel data on shipping, trade, and development, I find that (i) the adoption of the steamship had a major impact on patterns of trade worldwide; (ii) only a small number of countries, characterized by more inclusive institutions, benefited from trade integration; and (iii) globalization was the major driver of the economic divergence between the rich and the poor portions of the world in the years 1850–1900. (JEL F14, F43, F63, L92, N70, O33)