DP17482 Rise and Fall of Empires in the Industrial Era: A Story of Shifting Comparative Advantages

Author(s): Roberto Bonfatti, Kerem Cosar
Publication Date: July 2022
Keyword(s): comparative advantage, Empires, international trade, optimal country size
JEL(s): F1, F5, N7
Programme Areas: International Trade and Regional Economics, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17482

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.