Monday, 15 May 2017

How Extractive Was Colonial Trade?

Federico Tadei is Profesor Visitante
at Universitat de Barcelona
Extractive colonial institutions have been considered one of the main causes of current African underdevelopment (Acemoglu, Johnson, and Robinson, 2001; Nunn, 2007). Yet, since colonial extraction is hard to quantify and its precise mechanisms are not well understood, a paucity of research has examined exactly how successful the colonizers were in extracting wealth from Africans. 

In a new paper, I tackle this issue by focusing on colonial trade in French Africa. The French colonizers, in fact, made great use of trade monopsonies and compulsory harvest quotas to obtain agricultural commodities from African producers at very low prices and resell them in Europe for large profits (Coquery-Vidrovitch, 1972; Suret-Canale, 1971). Given this specific feature of French trade, I argue that it is possible to measure colonial extraction by looking at the gap between the prices that the African producers received and the prices that they should have obtained if colonial trade had been competitive. 

I examine this hypothesis as follows:
1) First, by using a variety of colonial publications, I reconstruct yearly estimates of prices at the French port, African producer prices, and trading costs (including shipping, insurance, inland transportation, port charges, and export taxes) for the main exported commodities between 1900 and 1960.
2) Then, I compute what producer prices should have been in a competitive market as the difference between prices at the French port and trading costs.
3) Finally, I compare actual and competitive producer prices to measure the level of colonial extraction related to export trade.
The figure below summarizes the main result of the paper, by showing the average gap between actual and competitive producer prices over time: on average prices to African producers were less than two thirds of what they would have been in a competitive market.

The figure shows the trend of average colonial extraction, defined as one minus the ratio between 
actual and competitive producer price.


In addition, I employ a two-fold approach to check the robustness of these results. First, I verify that price differentials in French Africa were much larger than the ones that we can observe in other markets not subject to colonial extraction, such as the trade between the United States and the United Kingdom and the trade of commodities produced in Africa by European settlers. Second, I use a regression analysis to take into account unobservable trading costs, such as risk compensation and productivity differences, and to demonstrate that an increase in the world price for a commodity did not generate a proportional increase in the African producer price.
Together, the evidence suggests that colonial trade dynamics were characterized by a considerable amount of extraction. Future research aimed at examining whether this had long-lasting consequences on current economic development is warranted.

This blog post was written by Federico Tadei, visiting professor at University of Barcelona.
The full paper is available at http://www.ehes.org/EHES_109.pdf.

References

D. Acemoglu, S. Johnson, and J. Robinson. The colonial origins of comparative development: An empirical investigation. American Economic Review, 91:1369-1401, 2001.

C. Coquery-Vidrovitch. Le Congo au temps des grandes compagnies concessionnaires, 1898-1930. Mouton De Gruyter, 1972.

N. Nunn. Historical legacies: A model linking Africa's past to its current underdevelopment. Journal of Development Economics, 83:157-175, 2007.

J. Suret-Canale. French colonialism in tropical Africa, 1900-1945. Pica Press, 1971.

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