Independence and trade: the specic eects of French colonialism Emmanuelle Lavallée¤ Julie Lochardy June 2012z Very preliminary. Please do note cite. Abstract Empirical evidence suggests that colonial rule and subsequent indepen- dence inuence past and current trade of former colonies. Independence ef- fects could dier substantially across former empires if they are related to the end of dierent preferential trade arrangements. Thanks to an original dataset including new data on pre-independence bilateral trade, this paper explores the impact of independence on former colonies' trade (imports and exports) for dierent empires on the period 1948-2007. We show that independence reduces trade (imports and exports) with the former metropole and that this eect is mainly driven by former French colonies. We also nd that, after independence, trade of all former colonies increase with third countries. A close inspection of the eects over time highlights that independence eects are gradual but tend to be more rapid and more intense in the case of exports. These results oer indirect evidence for the long-lasting inuence of colonial trade policies. Author Keywords: Trade; Decolonization; French Empire. JEL classication codes: F10; F54. ¤Université Paris-Dauphine, LEDa, UMR DIAL. Email: [email protected]. yErudite, University of Paris-Est Créteil. Email: [email protected]. zWe would like to thank participants at the IRD-DIAL Seminar and participants at the Con- ference on International Economics (CIE) 2012 for useful comments and suggestions. 1 1 Introduction Several studies highlight the consequences of colonial rule on bilateral trade. Mitchener and Wei- denmier (2008) assess the contemporaneous eects of empire on trade over the period 1870-1913. They show that belonging to an empire doubled trade relative to those countries that were not part of an empire. A country's prior colonial status is also shown to exert a still large and statis- tically signicant positive eect on current bilateral trade (see e.g. Rose, 2000; Glick and Taylor, 2006).1 This raises the question of the impact of decolonization on post-colonial trade. Head et al. (2010) investigate this issue using a worldwide data set over the period 1948-2006. They show that post-independence trade with the colonizer does not exhibit immediate signicant changes, but that after several decades, the accumulated trade erosion is large and statistically signicant. On average, trade between a colony and its colonizer is reduced by 65% after four decades. They obtain two other sobering results. Decolonization reduces trade between siblings, i.e. former parts of the same colonial empire, in a comparable extent. Independence also decreases trade of former colonies with the rest of the world. They interpret their ndings as the result of the deterioration of business networks. However, another interpretation lies in the end of preferential trade arrangements within empires. We focus on this second interpretation and assess two additional questions related to the inuence of de- colonization. Do the eects of independence on post-colonial trade patterns change according to the colonial power? Are exports and imports impacted in the same way? Indeed, the impact of independence on bilateral trade may change drastically across empires since they implemented very dierent colonial trade policies. In this respect, the liberal Great Britain is generally opposed to the protectionist France (see Mitchener and Weidenmier, 2009). Moreover, colonial trade policies also diered systematically between exports to and imports from the metropole. To gain some perspective on these questions, this article investigates the eect of indepen- dence on former colonies' exports and imports and compares the consequences of independence for dierent empires. While some studies explore this issue in a comparative fashion, they only rely on descriptive statistics (Kleiman, 1976, 1977). To examine the consequences of independence on trade, we construct a new bilateral database of trade between 71 developing countries and 190 partner countries over the period 1948-2007. Most of our data are extracted from the International Monetary Fund's Direction of Trade Statistics (DOTS). But since the DOTS scarcely report data prior to colonies' independence, in particular for French colonies, we increase our database by gath- ering data from various ocial French sources on bilateral trade of former French colonies from 1Rose (2000) shows in his benchmark results for 1990 that the colonial relationship raises bilat- eral trade by a factor of 5.75, everything else equal, while having had a common colonizer makes countries bilateral trade 80% larger. The positive and persistent eect of a common colonial history is related to similar institutions or surviving business networks. 2 1948 to their independence. We are thus able to compare properly the impact of independence for former French colonies and for other former colonies, in particular the British ones. Using a gravity model of trade, we rst investigate the impact of independence on bilateral trade (exports and imports) of former colonies worldwide and examine the specic impact of independence for former French colonies as compared to other former colonies. We show that independence reduces trade (imports and exports) with the former metropole and that this eect is mainly driven by former French colonies. We also nd that, after independence, trade (imports and exports) of all former colonies increase with third countries. Second, we explore the impact of independence over time for each former colonial empire and highlight that independence eects are gradual but tend to be more rapid and more intense in the case of exports. These results oer indirect evidence for the long-lasting inuence of colonial trade policies. Finally, we investigate the impact of independence on the geographical diversication (extensive margin) of former colonies' trade. The paper is structured as follows. In section 2, we expose the various preference systems implemented by the two major European colonial powers (Britain and France) and their potential consequences on the independence eects for former colonies' trade. In section 3, we describe our data, introduce the empirical model and discuss some estimation issues. In section 4, we estimate the average impact of independence on former colonies' trade, compare the impact of indepen- dence for dierent former colonial empires and compute some robustness checks. In section 5, we investigate the impact of independence over time. In section 6, we explore the consequences of independence on the geographical extensive margin of trade. Finally, we summarize our ndings and add concluding remarks in section 7. 2 Preferential arrangements within empires and in- dependence eects Independence may put an end to a series of special relationships - some formal, some informal - built up within empires so as to promote imperial trade at the expense of trade with the rest of the world. Informal arrangements cover business networks and all the products of historical and political connections between metropoles and their dependencies. These connections are likely to weaken following independence. As argued by Head et al. (2010), the gradual retirement of business people who facilitated trade within the empire could have induced a gradual decrease in bilateral trade relationships between the former colonizer and its former colonies (p.9). In this case, there is no obvious reason to suppose that the erosion of trade linkages could change drastically from an empire to another. On the contrary, formal relationships such as preferential trade agreements 3 and imports licensing policies implemented by colonial powers diered substantially across empires, in particular as regards the advantages they granted to their members. In this section, we briey describe the preferential arrangements implemented by the two major European colonial powers, namely Britain and France, at the time of colonization and their potential consequences on the post-colonial trade patterns of their colonies. In particular, we will argue that, given the nature of preferential schemes, independence is very likely to inuence more rapidly and more extensively the post-colonial trade patterns of former French colonies as compared to British ones. The liberal Great Britain is usually opposed the protectionist France.2 The British empire generally favored free trade policies and trade of British colonies was open to all foreign countries at least until 1932. Following World War I and the Great Depression, the British empire departed from free trade. Since the Ottawa Imperial Economic Conference in 1932, Britain, its colonies and its dominions (Canada, Australia, New Zealand, Union of South Africa, Irish Free State, Canada and Southern Rhodesia) have accorded to each other certain special privileges. However, although Ottawa agreements are the most important preferential agreements at the time of colonization, their importance should not be overestimated.3 The rst breach in the system existed from its creation. Indeed, a lot of British colonies (including nearly all African colonies) were excluded from imperial preferences since they were committed by international agreements preserving free trade and signed before 1932 (see de Sousa and Lochard, 2012). It is dicult to assess the eect of Ottawa preferences on members' trade notably because of the multiplicity of taris involved. In the mid-fties,