The political economy of imperial trade policies

Non Technical Summary

During the nineteenth and early twentieth centuries, European colonial empires expanded dramatically, bringing large parts of Africa, Asia, and other regions under imperial control. Trade lay at the heart of these empires. Colonies supplied raw materials and agricultural products to the imperial powers, while importing manufactured goods in return. These commercial relationships helped shape patterns of global trade that continue to influence the world economy today.

Colonial empires did not adopt the same trade policies. Some granted their colonies privileged access to their markets through reduced or zero tariffs, while others treated colonial goods no differently from imports from the rest of the world. Even within the same empire, trade policies often changed over time. In some cases, colonies shared a common external tariff with the imperial power, creating arrangements similar to today’s customs unions. In others, colonies retained greater autonomy over their trade policy, leading to arrangements that more closely resembled modern free trade agreements.

These differences raise an important question: why did some colonial empires adopt preferential trading arrangements while others did not? More broadly, what political and economic factors shaped the design of imperial trade policy? Surprisingly, despite extensive research on the economic consequences of colonialism, there has been relatively little systematic evidence on the trade policies adopted by empires and why they chose alternative arrangements.

This paper addresses this gap by combining new historical data with a political economy model that explains how political incentives shaped trade policy within colonial empires.

The first contribution of the paper is the construction of a comprehensive dataset documenting trade policies across the major colonial empires between 1815 and 1960. The dataset covers seven imperial powers—Britain, France, Germany, Italy, Japan, the Netherlands, and Portugal—and 127 colonies over nearly a century and a half. Drawing on archival material, official publications, and secondary sources, we identify whether colonies and imperial powers granted each other preferential tariff treatment and whether they operated under common external tariffs. We also compile information on trade flows, economic development, population, settlement patterns, political institutions, and the gradual expansion of voting rights within the imperial powers.

Building on these new data, the paper develops a framework to capture the main political forces that influenced imperial trade policy. We argue that three broad factors were particularly important.

First, competition between rival empires mattered. As colonial powers competed more intensely for markets and resources, they had stronger incentives to strengthen economic ties within their own empires. Granting preferential access to colonial markets could help protect producers from foreign competition while reinforcing the empire’s commercial integration.

Second, domestic political change within the imperial powers played a central role. During the nineteenth century, voting rights were gradually extended to larger segments of the population. As electorates expanded, political power shifted away from wealthy property owners towards broader groups of voters with different economic interests. These political changes altered governments’ incentives and influenced their willingness to support preferential trade arrangements. Our framework predicts that, as political participation widened, support for imperial trade preferences weakened.

Third, colonial empires differed substantially in the degree of political autonomy granted to their colonies. In some colonies, local governments had significant influence over economic policy, while in others trade policy remained tightly controlled by the imperial authorities. These institutional differences affected not only whether preferential trade agreements were adopted but also how they were designed. In particular, more decentralised empires were more likely to adopt arrangements involving common external tariffs, resembling modern customs unions.

The paper then evaluates these predictions using the newly assembled historical dataset. The empirical analysis examines both whether preferential trade arrangements were established and, when they were, whether they took the form of looser preferential agreements or more integrated customs unions.

The findings provide strong support for the theoretical framework. Empires facing greater competition from rival colonial powers were significantly more likely to adopt preferential trade arrangements with their colonies. At the same time, the gradual extension of voting rights in the imperial powers reduced the likelihood that such arrangements would be introduced or maintained. Finally, institutional differences across empires helped explain why some adopted deeper forms of trade integration than others.

Beyond explaining an important historical phenomenon, the paper contributes to several broader areas of research. It provides a unique historical dataset that will be valuable for future studies of colonialism, international trade, and political institutions. It also extends existing theories of trade agreements by showing how they apply to the distinctive setting of colonial empires, where political authority was highly unequal between imperial powers and colonies. Finally, while much previous research has examined the effects of colonial trade policies on trade flows and long-run economic development, this paper shifts attention to the political and institutional forces that determined why these policies emerged.

Understanding the origins of imperial trade policies sheds new light on the relationship between politics and international economic integration during one of the most transformative periods of global history. More broadly, the paper illustrates how changes in political representation, institutional design, and international competition can shape trade policy—a lesson that remains relevant for understanding the political economy of trade agreements today.