Trade and Colonial Status

Abstract

Does colonisation explain differences in trade performance across developing countries? In this paper, we analyse the differential impact of British versus French colonial legacies on the current trade of African ex-colonies. We initially find that former British colonies trade more, on average, than do their French counterparts. This difference might be the result of the relative superiority of British institutions. However, a core concern is the non-random selection of colonies by the British. Historians argue that with Britain, trade preceded colonisation. Using an instrument based on colonisation history to control for this endogeneity, we find no evidence of a systematic difference between the British and French colonial legacies with respect to trade. This finding suggests that the apparent better performance of British ex-colonies might be instead explained by pre-colonial conditions.

Trade networks and colonial trade spillovers

“…In quantitative terms, this implies that British and French former colonies have a level of trade with their former colonizer 3 (=exp(1.123)) to 5 (=exp(1.698)) times above what the gravity equation would otherwise predict in the absence of colonial trade linkage. These numbers are in line with previous estimations provided by De Sousa and Lochard () or Head et al ().…”

“…An important question in the colonial trade linkage literature relates to the selection of colonies by colonizers, and ultimately the impact of colonization on the overall economic performance of these countries even today. De Sousa and Lochard () address the following question: “Does colonization explain differences in trade performance across developing countries?” They first document that British colonies have better trade performance compared with former French colonies in Africa, a result that will be confirmed in our empirical approach. Their empirical results conclude that this pattern is likely explained by pre‐colonization conditions and the selection of these colonies by British settlers.…”

Institutional determinants of ownership positions of foreign acquirers in Africa

“…To capture the existence of a colonial tie, we created a dummy variable which was equal to 1 if a colonial relationship ever existed between the acquiring firm's country and the target firm's country and 0 otherwise (Cuervo-Cazurra & Genc, 2008;Lane & Milesi-Ferretti, 2008). Data was gathered from the territorial changes database made available by the Correlates of War (COW) project 7 (Head, Mayer, & Ries, 2011;de Sousa & Lochard, 2012). This database lists changes in the political status for every country since 1816 to reflect its joining with other countries, becoming a colony or protectorate of another country, or being occupied by another country.…”

“…We reverse coded the index so that higher scores indicated greater probability of change and more political risk. Also, we captured: (a) whether the target country's legal origin was common law (Acemoglu et al, 2001;de Sousa & Lochard, 2012); (b) whether target government restrictions existed with regard to the level of foreign ownership allowed in the target firm's primary industry (i.e., Kedia & Bilgili, 2015;Liou, Chao, & Yang, 2016); (c) whether the target government was promoting privatization of the local firm by selling its equity stake (Malhotra & Gaur, 2014); and (d) if the target country was South Africa, given differences in its historical development as compared to other countries on the continent (Triki & Chun, 2013). 11 When the respective conditions were met, the variable was coded 1 and 0 otherwise.…”

The comparative effects of independence on trade

“…The first crack in the system existed from its creation. Many British colonies (including many African colonies) were excluded from imperial preferences because they were bound by international agreements preserving free trade that were signed before 1932 (see de Sousa and Lochard, 2012). Thus, the increase in preference after Ottawa primarily concerned Commonwealth countries that are not covered here (e.g., Australia, Canada, New Zealand).…”