Trade and Hegemony
By Arnold Kling
In the absence of hegemony, trade is impaired. If Marco Polo wants to buy goods in Afghanistan and sell them in China, he has to be able to avoid having his goods stolen, either by bandits along the route or by criminals or government rulers at his destination. Without protection from a hegemon, he is unlikely to be able to complete his trade mission.
See also Kris James Mitchener and Marc Weidenmier.
Our augmented gravity model shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire. The positive impact that empire exerts on trade does not appear to be sensitive to whether the metropole was Britain, France, Germany, Spain, or the United States or to the inclusion of other institutional factors such as being on the gold standard. In addition, we examine some of the channels through which colonial status impacted bilateral trade flows. The empirical analysis suggests that empires increased trade by lowering transactions costs and by establishing trade policies that promoted trade within empires. In particular, the use of a common language, the establishment of currency unions, the monetizing of recently acquired colonies, preferential trade arrangements, and customs unions help to account for the observed increase in trade associated with empire.
I argue that these facts are uncomfortable for libertarians. We would like to think of trade and military hegemony as substitutes. Instead, they appear to be complements.
Make sure you read the appendix to my essay, where I stake out my position that early markets had a low ratio of produced goods to plundered goods.