Effects of decolonization on bilateral trade: Evidence from natural experiments

Abstract

This paper estimates the effects of decolonization on bilateral trade by exploiting the end of colonial linkages between the United Kingdom and Hong Kong in 1997 and between Portugal and Macau in 1999. The two-year gap between these two historical events creates an exogenous time variation in colonial separations across colonial pairs to implement the differences-in-differences strategy. The results show that if a colonial relationship breaks up, then the imports from the former colonial counterpart increases by 42 percent and the post-colonial trade share increases by 0.29 percentage points. Further investigations suggest that the large and positive effects of decolonization on the post-colonial imports are largely operated through mechanisms of income and exchange rate.

Keywords:

• Bilateral trade
• colonial rule
• decolonization
• differences-in-differences
• natural experiments

JEL Classifications:

• F14
• F15

Acknowledgments

I am grateful to the editor, Lex Zhao, and an anonymous referee for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For example, Indonesia obtained its independence from the Dutch empire in 1949 after the Indonesian National Revolution.

2 Refer to https://www.robertcfeenstra.com/data.html.

3 Refer to https://data.worldbank.org/.

4 The recent empirical papers using variation in treatment timing include, for example, Deryugina (2017), He and Wang (2017), Kuziemko, Meckel, and Rossin-Slater (2018), and Lafortune, Rothstein, and Schanzenbach (2018).

5 This implies that the results in this paper are robust to the functional form assumption of the differences-in-differences model.

6 See Huang, Meng, and Liu (2021) for a recent application of an event study to test the common trend assumption in the trade literature.