The effects of market integration during the first globalization: A multi-market approach

This paper is a first attempt to measure the effects of international market integration on world trade and welfare in the ''long nineteenth century". We run a multi-market partial equilibrium model, which takes into account the interactions between route-specific changes in trade costs, for the two most traded commodities, cotton and wheat. The collapse in trade costs accounted for 60 percent of the growth of trade for cotton and for 40 percent for wheat. As expected, welfare gains were larger for small open economies, but they were substantial also for large countries, with big differences determined by trade policies.