The Economic Consequences of the Opium War
This paper studies the economic consequences of the West’s foray into China after the Opium War (1839-42), when Western colonial influence was introduced in dozens of so-called treaty ports. We document a turnaround during the 19th century in the nature of China’s capital markets. Whereas before the Opium War, coastal cities were of relatively minor importance, the treaty port system of the West transformed China into an economy focused on coastal areas and on international trade that aligned with the trading interests of the West. We show, first, that the West had a positive impact on China’s economy during the 19th century. It brought down local interest rates, and regions under Western influence exhibited both higher rates of industry growth and technology adoption. Second, the geographic scope of influence went far beyond the ports, impacting most of China. Interest rates fell by more than a quarter in the immediate vicinity of the ports and still by almost ten percent at distances of 450 kilometers from treaty ports. The development of China was not simply propelled by its own pre-1800 history, or by post-1978 reforms. The nearly 100 years of semi-colonization have shaped China’s economy today as one focused on the coastal areas.
This paper incorporates parts of the draft “Capital Markets and Colonial Institutions in China”. Thanks to Ying Bai, Hanming Fang, Taylor Jaworski, Ruixue Jia, Tom Rawski, Gerard Roland, Shang-jin Wei, Michael Zheng, and audiences at Banco de Espana, CEPR, CESI (Beijing), Cornell, Hong Kong Monetary Authority, Rutgers, NBER China Working Group, NBER DAE Summer Institute, NYU Abu Dhabi, SHUFE (Shanghai), Stanford, UC Irvine, UCLA, UC Merced, and UIBE (Beijing) for comments. Ying Bai and Ruixue Jia helped with the data. Kyle Butts, Xavier Gitiaux, Peiyuan Li, Yibei Liu, Nate Neligh, Austin Smith, and Tyler Bodine-Smith provided excellent research assistance. Support from the National Science Foundation (Grants SES 0453040 and SES 1124426) is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.