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Must-Read: Chris Meissner: Research Summary - Washington Center for Equitable Growth

The first ‘Great Wave of Globalization,’ during the late 19th and early 20th centuries witnessed a historically unprecedented rise in spatial economic integration… …Previous work in economic history has emphasized the rapid decline in transportation costs and the fall in tariffs. However, a number of other trade costs mattered over this period, and not all of them followed the same path as real transportation costs…. When two nations adopted the gold standard, trade was higher by 15 percent, on average, relative to non-adopters. Monetary unions, political alliances, language, and trade treaties also affected the direction of trade…. Our data for the U.S., U.K., and France and their major trading partners between 1870 and 1913 show that trade costs fell at a rate of about 0.3 percent per year, which is significantly slower than the decline in average maritime freight rates of 2 percent per year. Our explanation for this is, first, that our all-encompassing trade-cost measure captures many other frictions…. Globalization in the 19th century had a very important ‘extensive margin.’ While the existing literature on pre-1914 globalization has emphasized a ‘great specialization,’ this characterization fails to take into account that a significant fraction of the growth of trade was due to the export of new goods and the opening up of new markets. Significant amounts of the observed trade flows were also in fact already intra-industry. This observation leads us to believe that then, as now, firm-level heterogeneity and trade costs mattered…. As fixed costs fell and presumably as new firms found it profitable to enter export markets, many industries experienced relatively slow productivity growth as low-productivity entrants were now able to survive…. Overall productivity growth between 1870 and 1910 was much slower than we would expect in the midst of such an unprecedented trade boom, and it was much lower than productivity growth in the new-goods sectors…. Observe that, from the middle of the 19th century, many countries dramatically extended the franchise, thereby increasing the level of ostensible democracy. A similar trend coincided with the more-recent wave of globalization, as the number and share of democracies in the world rose dramatically from the 1960s…. We use an instrumental-variables strategy inspired by Jeffrey Frankel and David Romer to see whether, in the first wave of globalization in particular, exposure to trade flows might have had a causal impact on democracy. There is little evidence that it did…
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