Rise and Fall of Empires in the Industrial Era: A Story of Shifting Comparative Advantages
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.
We would like to thank audiences at the University of Padua, University of Virginia, George Mason, William and Mary, Michigan State University, Barcelona School of Economics Summer Forum 2018 and NOITS 2022. We thank James Harrigan for valuable comments and discussions, and Tony Hopkins for feedback on interpreting his historical analysis. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.