Must-Read: Nuno Palma: Sailing Away from Malthus: Intercontinental Trade and European Economic Growth, 1500-1800

Must-Read: Nuno Palma: Sailing Away from Malthus: Intercontinental Trade and European Economic Growth, 1500-1800:

What was the contribution of intercontinental trade to the development of the European early modern economies?…

Previous attempts to answer this question have focused on static measures of the weight of trade in the aggregate economy at a given point in time, or on the comparison of the income of specific imperial nations just before and after the loss of their overseas empire. These static accounting approaches are inappropriate if dynamic and spillover effects are at work, as seems likely. In this paper I use a panel dataset of ten countries in a dynamic model which allows for spillover effects, multiple channels of causality, persistence and country-specific fixed effects. Using this dynamic model, simulations suggest that in the counterfactual absence of intercontinental trade, rates of early modern economic growth and urbanization would have been moderately to substantially lower. For the four main long-distance traders, by 1800 the real wage was, depending on the country, 6.1 to 22.7% higher, and urbanization was 4.0 to 11.7 percentage points higher, than they would have otherwise been. For some countries, the effect was quite pronounced: in the Netherlands between 1600 and 1750, for instance, intercontinental trade was responsible for most of the observed increase in real wages and for a large share of the observed increase in urbanization. At the same time, countries which did not engage in long-distance trade would have had real wage increases in the order of 5.4 to 17.8% and urbanization increases of 2.2 to 3.2 percentage points, should they have done so at the same level as the four main traders. Intercontinental trade appears to have played an important role for all nations which engaged in it, with the exception of France. These conclusions stand in contrast with the earlier literature which uses a partial equilibrium and static accounting approach.