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What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.

We examine the evolution of market potential and its role in driving economic growth over the long twentieth century. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are thus able to express market potential as a function of directly observable and easily estimated variables. Empirically, we collect a large dataset on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world from the early 1930s and that this trend significantly deviates from the evolution of world GDP. Finally, using exogenous variation in trade-related distances to world markets, we demonstrate a significant causal role of market potential in driving global income growth over this period.

We examine the evolution of market potential and its role in driving economic growth over the long twentieth century. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are thus able to express market potential as a function of directly observable and easily estimated variables. Empirically, we collect a large dataset on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world from the early 1930s and that this trend significantly deviates from the evolution of world GDP. Finally, using exogenous variation in trade-related distances to world markets, we demonstrate a significant causal role of market potential in driving global income growth over this period.

What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure\ud of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs\ud in determining international trade flows. We construct a new balanced sample of bilateral trade flows\ud for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to\ud 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom.\ud In contrast, for the post-World War II trade boom we identify changes in output as the dominant force.\ud Finally, the entirety of the interwar trade bust is explained by increases in trade costs.\ud

What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.

How important was coal to the Industrial Revolution? Despite the huge growth of output, and the grip of coal and steam on the popular image of the Industrial Revolution, recent cliometric accounts have assumed coal mining mattered little to the Industrial Revolution. In contrast both E. A. Wrigley and Kenneth Pomeranz have made coal central to the story. This paper constructs new series on coal rents, the price of coal at pithead and at market, and the price of firewood, and uses them to examine this issue. We conclude coal output expanded in the Industrial Revolution mainly as a result of increased demand rather than technological innovations in mining. But that expansion could have occurred at any time before 1760. Further our coal rents series suggests that English possession of coal reserves made a negligible contribution to Industrial Revolution incomes.

Did adoption of the gold standard exacerbate or diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. A hard exchange-rate regime such as the gold standard might limit monetary shocks if it ties the hands of policy-makers. But any decision to forsake exchange-rate flexibility might compromise shock absorption in a world of real shocks and nominal stickiness. A simple model shows how a lack of flexibility can be discerned in the transmission of terms of trade shocks. Evidence on the relationship between real exchange rate volatility and terms of trade volatility from the late nineteenth and early twentieth century exposes a dramatic change. The classical gold standard did absorb shocks, but the interwar gold standard did not, and this historical pattern suggests that the interwar gold standard was a poor regime choice.

Did adoption of the gold standard exacerbate or diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. A hard exchange-rate regime such as the gold standard might limit monetary shocks if it ties the hands of policy makers. But any decision to forsake exchange-rate flexibility might compromise shock absorption in a world of real shocks and nominal stickiness. A simple model shows how a lack of flexibility can be discerned in the transmission of terms of trade shocks. Evidence on the relationship between real exchange rate volatility and terms of trade volatility from the late nineteenth and early twentieth century exposes a dramatic change. The classical gold standard did absorb shocks, but the interwar gold standard did not, and this historical pattern suggests that the interwar gold standard was a poor regime choice.

What drives globalization today and in the past? We employ a new micro-founded measure of bilateral trade costs based on a standard model of trade in differentiated goods\ud to address this question. These trade costs gauge the difference between observed bilateral trade and frictionless trade. They comprise tariffs, transportation costs and all other factors that impede international trade but which are inherently difficult to observe. Trade costs\ud fell on average by ten to Þfteen percent between 1870 and 1913. We also use this measure to decompose the growth of global trade over that period and Þnd that roughly 44 percent of the global trade boom can be explained by reductions in trade costs; the remaining 56 percent is attributable to economic expansion.