DP14206 Atlantic Trade and the Decline of Conflict in Europe

Author(s): Reshad Ahsan, Laura Panza, Yong Song
Publication Date: December 2019
Date Revised: March 2020
Keyword(s): Atlantic Trade, conflict, International Relations
JEL(s): D74, F10, F51, N43
Programme Areas: Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14206

We use over 250 years of conflict and market integration data to provide the first quantitative evidence that Atlantic trade contributed to Europe's pacification between 1640 and 1896. While the decline in conflict in Europe during this period has been well documented, the role of Atlantic trade has not been previously explored due to a lack of historical trade data. We overcome this constraint by using wheat prices to calculate time-varying measures of market integration between Europe and the New World, which we use as a proxy for Atlantic trade. To identify the causal effects of Atlantic trade, we exploit exogenous changes in wind patterns and tropical cyclone activity over the Atlantic Ocean to instrument trade. Our results suggest that the growth in Atlantic trade between the mid-17th to the early 19th century lowered the likelihood of intra-European conflict onset by 14.90 percent from the baseline onset probability of 2.02 percent. We find empirical support for two channels driving our results: first, Atlantic trade led to an increase in real wages and a reduction in both army and navy sizes in Europe. Second, we show that the possibility of forgone Atlantic trade acted as a deterrent to conflict.