The Colonial Origins of French Trade Patterns Tania Kallab Advisor: Cristina Terra 24 October, 2013 that
I. Sommaire Research Question and Motivation Colonialism and Economic Performance (AJR 2001, Alam 1994, Bretocchi 2001, ES 1997, Kown 2001, Lange 2006, Nunn 2008 09, Sylwester 2007, etc ) Gap: Little attention has been given to the impact of colonial legacy on trade patterns during colonization No paper to our knowledge has focused on understanding how the nature of colonization impacted the volume and the type of goods traded. Question: How might French trade differ regarding either an exploitation or a settlement colonization through both channels of institutions and networking? H.K Colonialism Growth institutions trade growth Tania Kallab I Colonial Impacts on trade patterns 2
II. Sommaire Hypothesis Tania Kallab I Colonial origins of trade patterns 3
III. Historical Justification Sommaire Trade and Institutional Quality Better colonial Institutions promote current trade in British ex colonies v/s French ones (Desousa and Lochard 2010) Belonging to an empire and being part of an institutional framework (custom union, currency union ) doubles colonial bilateral trade (Mitchener and Weidenmier 2008) Prior Colonial Status impacts significantly current bilateral trade (Rose 2000, Glick and Taylor 2006) Institutional homogeneity promotes trade by 13% and that institutional quality increases it by 30% (DeGroot, 2004) Independence put end to forms of trade agreements and lead to decrease in postcolonial trade (Head et al. 2010) Tania Kallab I Colonial origins of trade patterns 4
III. Historical Justification Sommaire Trade and Networking European Colonization brought human capital (EL 2012) Human Capital = Networking =lower transaction costs Networking reduces cost of transaction Alleviate uncertainty, information asymmetry and opportunism (Parsons 2005) Economic, cultural, institutional knowledge about home and foreign country increase trade (Egger 2012) In an opportunistic environment the mutual benefit is less likely Tania Kallab I Colonial origins of trade patterns 5
III. Historical Justification Sommaire Settlement, Institutions and Networking Europeans migrated in large numbers, they supplanted indigenous institutions with their own European style institutions. Europeans brought more than just institutions to the New World. They brought their own human capital as well that Glaesser, La Porta, Lopez de Silanes, and Shleifer (2004) (GLLS) Colonization strategy was subject to viability of settlement: more disease extractive state Profitable market but no land, no climate: no settlement, authoritarian political institutions European colonization had lasting effects on political institutions and hence on economic development (ES 1997, AJR 2001) Tania Kallab I Colonial origins of trade patterns 6
IV. Sommaire French Colonial Strategy France implemented custom unions V/S Britain open door policy ROW free trade industrialization V/S France protectionism Imposing prices and products Former colonies exported primary products to their metropole, they imported manufactured goods from their colonial power (Lavallée, Lochard, 2012). EmpirewasusedasaBufferintimesofcrisis Metropolis would acquire land in periods of crisis Ex french colonies have traditionally employed mercantile economic policies that have restricted their level of international trade domestic investment and educational attainment (Kown 2011) Tania Kallab I Colonial origins of trade patterns 7
V. Sommaire Data Description We constructed a new database of more than 30,000 observation for a set of 120 countries over the period of 1880 1922, relying on the Tableau General du commerce Exterieur de la France We gathered more than 5,000 observation of both imports and Exports for each of the following sectors: Agricultural products, raw products for industry, manufactured goods Countries in the original archival dataset were divided according to their post WWII nomenclature. Exhaustive work due to highly changeable political situation Trade value was divided according to average land area in the subgroup Construct dummies for Colonizer, year of colonization, year of independence (Mayer et al. 2010, CEPII) Countries change position continuously in the sample hence does their trade values (i.e. African Countries) 28 French colonies, 37 British colonies, 17 colonies from other colonizers 21 sovereign countries, and 17 previous colonies. Tania Kallab I Colonial origins of trade patterns 8
Not colonized French Colonies British Colonies Other Colonies
IV. Baseline Model Sommaire Estimated equations Cross Section OLS estimators: Ln( ST _ Trade ) XMi,, 0 1 EurSettl1900 i 2 Institutions i 3 popden1900 i 4 dist 5 cli i Institutions i 0 1 EurSettl1900 i EurSettl1900 i 0 1 cli i 2 Settlementorigins i Multi group analysis per group of colonies and group of trade agreements and group of settlers Tania Kallab I Colonial origins of trade patterns 13
VII. Sommaire Stylized Model Tania Kallab I Colonial origins of trade patterns 14
VIII. PLS SEM Partial Least square Simultaneous equation modeling Sommaire Some Definitions PLSPM test a predictive model that examines causal relationships (Hair Jr. et al, 2012) Generalisation of principal component analysis (PCA) to the case of several data tables connected by causal links. (Tennenhaus, 2008) Many proxies defining one latent variable Allows simultaneous multivariate analysis Identifies direct and indirect effects Allows group analysis (compare different groups of colonies and different groups of trade union members) Tania Kallab I Colonial origins of trade patterns 15
VIII. PLS SEM Partial Least square Simultaneous equation modeling Sommaire Advantages Limitations Can be carried out on small sample <100, corrects for measurement errors Block analysis Allows to check simultaneous causal effect simultaneously and check the direct and indirect effect Define causality a priori Define indicators a priori Confirms or reject a prior established theory The PLS SEM represent directional relationships, need a strong theoretical support to assume causal relationships Tania Kallab I Colonial origins of trade patterns 16
IX. Sommaire DataSet The European Settlement data is from AJR (2001) completed from Huillery (2011) for the missing information The constraint on Executive 1900 index is a Seven category scale from 1 to 7, with a higher score indicating better quality of institutions. (AJR 2001) and the polity III dataset. Democracy 1900 is 0 to 10 index, same source as Constraint on executive, higher score indicating more democracy Population 1900 from (Nunn 2011), missing data will be adjusted and interpolated from available ones (Maddison, 2003) Distance from CEPII (www.cepii.fr/francgraph/bdd/distances.htm) and Mayer et al. (2011). from Nunn (2008). Trade policies from (Mitchener, Weidenmier 2008). Dummies for colonial status were constructed Population density in 1500 and log settler mortality in 1900 from (AJR 2001, 2001) Tania Kallab I Colonial origins of trade patterns 17
X. Sommaire Defining the indicators Construct determinants Manifest variable Latent Variable Standardized loadings weights Critical Ratio Lower Bound Upper bound Fr exports of Agricultural goods 0.982 0.307 274.533 0.973 0.988 Fr exports of raw material French Exports 0.984 0.404 307.244 0.975 0.987 Fr exports of Manufactured goods 0.983 0.306 273.952 0.975 0.989 Fr Imports of Agricultural goods 0.834 0.213 19.103 0.710 0.907 Fr Imports of raw material French Imports 0.936 0.419 59.883 0.897 0.962 Fr Imports of Manufactured goods 0.968 0.453 95.121 0.938 0.981 Population Density 1500 Settlement origins 0.327 0.448 2.807 0.145 0.752 Log Settler mortality 1900 0.901 1.134 12.855 0.568 0.947 Maximum humidity Climate 0.968 0.522 72.190 0.924 0.991 Minimum Humidity 0.967 0.512 77.590 0.932 0.987 Cosntraint on Executive 1900 Institutions 0.973 0.497 107.329 0.944 0.985 Democracy 1900 0.980 0.552 124.845 0.953 0.989 European Settlement 1900 1 1 1.000 1.000 Population Density 1900 1 1 1.000 1.000 Distance 1 1 1.000 1.000 loadings measure the well the indicators explain the corresponding LV. Value is significant at 95% confidence level 12
XI. Sommaire Results of outer Model Panel A: Outer Model Whole sample G0 G1 G2 G3 (1) (2) (3) (4) (5) Dependent Variable: European Settlement 1900 Settlement origins 0.501*** 0.354*** 0.366 0.547** 0.296 (0.08) (0.11) (0.33) (0.28) (0.30) Climate 0.0264** 0.218 0.036 0.039 0.36 (0.09) (0.15) (0.25) (0.28) (0.30) R squared 0.288 0.166 0.128 0.284 0.200 Obs. 100 49 12 27 12 Notes: All regressions are PLS SEM, the estimator is the OLS estimator Settlement origins is constructed using log settler mortality in 1900 and population density in 1500. G0 to G3 defines subgroups having respectively no trade preference with any empire, having trade preference with French empire, british empire and other empires Panel B: Outer Model Whole sample G0 G1 G2 G3 (1) (2) (3) (4) (5) Dependent Variable: Institutions 1900 European Settlement 1900 0.606*** 0.25** 0.064 1.025*** 0.97*** (0.078) (0.110) (0.316) (0.050) (0.070) R squared 0.379 0.071 0.004 0.973 0.97 Obs. 100 49 12 27 12 12
XII. Sommaire Results of Inner Model Inner Model Whole sample G0 G1 G2 G3 (1) (2) (3) (4) (5) Dependent variable: S T Exports Euro Settlement 1900 0.187* 0.171* 0.232 1.23 0.478* (0.11) (0.11) (0.35) (1.32) (0.30) Institutions 0.04 0.170* 0.34 0.876 0.448* (0.10) 0.11 (0.56) (0.88) 0.30 Population density 1900 0.381*** 0.511*** 1.885** 0.587** 2.13** (0.10) (0.14) (0.88) (0.30) (0.23) Distance 0.122 0.168 0.215 0.39* 0.3*** (0.09) (0.11) (0.35) (0.22) (0.08) Climate 0.374*** 0.115 2.02** 0.138 0.62*** (0.10) (0.12) (1.02) (0.29) (0.08) R2 0.23 0.19 0.69 0.70 0.97 obs. 100 49 12 27 12 Note: The dependent variable is constructed under 3 indicators: agricultural goods, raw material and manufactured goods The institutions is construced under democracy in 1900 and constraint on executive in 1900 G0 to G3 defines subgroups having respectively no trade preference with any empire, having trade preference with French empire, british empire and other empires 12
XII. Sommaire Results of inner Model Inner Model Whole sample G0 G1 G2 G3 (1) (2) (3) (4) (5) Euro Settlement 1900 0.125 0.051 0.106 0.75 (0.11) (0.12) (0.24) (0.51) Institutions 0.147 0.21* 0.887*** 0.57 (0.11) (0.12) (0.39) (0.50) Population density 1900 0.415*** 0.441** 2.069*** 0.421** 2.39*** (0.11) (0.16) (0.62) (0.22) (0.38) Distance 0.07 0.355* 0.244 0.17 (0.10) (0.13) (0.25) (0.14) Climate 0.33** 0.085 2.25** 0.553** (0.10) (0.14) (0.72) (0.51) R2 0.195 0.169 0.84 0.51 0.93 obs. 100 49 12 27 12 Note: The dependent variable is constructed under 3 indicators: agricultural goods, raw material and manufactured goods The institutions is construced under democracy in 1900 and constraint on executive in 1900 G0 to G3 defines subgroups having respectively no trade preference with any empire, having trade preference with French empire, british empire and other empires Inner model is used according to regression (3) in the outer model 12
II. Sommaire Direct and Indirect results Direct effects Settlement origins European Settlement institutions settlement decision 0.501 institutions 0.606 ST exports 0.187 0.043 ST imports 0.125 0.147 Indirect effects Settlement origins European Settlement institutions 0.304 ST exports 0.107 0.026 ST imports 0.107 0.089 Total effects Settlement origins European Settlement settlement decision 0.501 institutions 0.304 0.606 ST exports 0.107 0.213 ST imports 0.107 0.214 12
Thank You! 24