The Colonial Impacts on French trade patterns

The legacy of colonialism has been a major institutional drive of economic performance. Its impact on current growth has raised interest among many scholars and economists; however, its relationship with, and its effect on trade patterns have received little attention. This scarcely studied facet of colonial impact is important because colonial ties may have imposed territorial powers through shaping trade policies, by setting up preferential trading relationships and securing favourable markets in order to sustain themselves. We note that some literature has endeavoured to reveal the impact of institutions on current trade flows while others have examined the effect of independence on post-colonial trade. However, no paper, to our knowledge, has focused on understanding how the nature of colonization impacted the type of goods traded during the colonial era. In order to address this gap, we attempt to discover to what extent the type of products that attracted the mother country were shaped by the quality of institutions or by the nature of colonization adopted. In this regard, we construct a new database relying on various primary historical sources containing information on the value of French sectorial trade -Agricultural raw material, raw material for industry and manufactured goods- with each of its trading partners during the period of 1880-1913. Using a gravity model equation, we investigate how settlements affected the type of institutions introduced and accordingly how the latter shaped the different sectorial patterns between France and its colonies as compared to its trade patterns with other countries. Our identification strategy relies on a 2SLS model where European settlement is instrumented by settler mortality in 1900, pre-colonial population density (in the 1500s) and latitude. Then we attempt to disentangle empirically both channels of European Settlement: the network effect illustrated by both common language and the duration of colonization and the institutional effect where we include constraint on executive and Democracy in 1900 as the main institutional variables. Controlling for the main gravity model factors, our results suggest that higher French settlement increase the French imports and exports of all goods except the imports of agricultural raw materials which increase with less settlement meaning that “Extractivist” policies do not need to settle. This positive impact is mainly driven by the network effect which, taken alone, show positive estimates for all sectors. The institutional effect among french colonies, however, affects negatively trade. The worse the institutions in the French colonies the higher the over whole French trade; however better institutions in the British and other colonies increase French exports of raw materials for industry or british colonial imports of materials for industry. Moreover the effect of French settlement on the imports of agricultural raw material seems to be sensitive to the reverse causality issue. When we control for endogeneity, we see that even among extractive strategies, higher share of French settlers and better institutions increase productivity and hence French imports of agricultural raw material.