Thursday, 24 February 2022

The Panopticon of Germany’s Foreign Trade. New Facts on the First Globalization, 1880-1913.

Wolf-Fabian HUNGERLAND and Nikolaus WOLF. 

The full paper in the EREH can be read here

We are used to distinguishing between the “first” and the “second” globalization, separated not only by two world wars, but also by changes in technology and institutions, and hence their basic economic logic. The first globalization is typically described in terms of “classical” trade models of comparative advantage, where countries trade to take advantage of their differences. In contrast, the second globalization is largely described in terms of “new” trade models based on monopolistic competition and firm heterogeneity. Here, similar countries trade because they are all populated by firms exploiting economies of scale and differences in productivity.

The similarities and differences between these two globalizations are subject to a large and growing literature (Baldwin 2016, Jacks and Stürmer 2020). Given the rise in trade between very different countries like the USA and China, Paul Krugman asked during his Nobel prize lecture of 2008: “is the world becoming more classical?” (Krugman 2008). In a new paper (Hungerland and Wolf, EREH forthcoming), we describe Germany’s foreign trade 1880-1913 with new and very detailed evidence. To us, this evidence begs the question of how “classical” has the world ever been in the first place? Put differently, to what extent can “new” trade theory help us to understand the first globalization?

We have three main findings. First, and least surprising, Germany got increasingly specialized in manufacturing, notably chemicals, machinery and transport equipment. This is fully in line with predictions of “classical” trade models, and Germany having a comparative advantage in industries that use physical and human capital intensively. Second, however, we find that nearly all growth in exports and most growth in imports took place along the extensive margin, mostly driven by new products traded with old trade partners. Third, we find that between 25-30% of trade at our finest level of disaggregation is intra-industry trade, i.e. trade in the same product category. The latter two findings imply that we cannot understand the first globalization unless allowing for very substantial heterogeneity within countries and industries.

To create our data, we first digitalized all historical statistics on the foreign trade of the German customs union and the two major port cities Bremen and Hamburg that stayed outside of that customs union before 1889. Our data covers all imports and exports from 1880 to 1913 of all products, with all trade partners, captured in values and quantities. Next, we reclassified all data to the SITC system, and used a quota method to merge the Bremen and Hamburg data with that of the German customs union to create one consistent dataset. Using the SITC, we can compare this to historical trade data for other countries (e.g. Italy, see Federico and Wolf, 2012) and modern trade data. In a related paper, Hungerland and Altmeppen (2021) provide details on this and discuss, which revision of SITC is best suited to create comparable, historical and long-run trade data.

Figure 1 shows the growth of imports and exports of the German Empire, 1880-1913. This trade growth was much faster than GDP, resulting in a rising openness ratio. Moreover, Germany was catching up to the UK, to become the second largest trading nation in the world by 1913.


In 1913-marks. Statistical items excluded. Source: Own calculations.


Table 1 is a first cut through the aggregate data: we see how imports and exports grew between 1880 and 1913 at the level of 1-digit SITC sectors. The pattern is roughly in line with “classical” trade models, where exports of manufacturing products grow more rapidly than imports, while the opposite holds for agricultural products and raw materials. However, the growth of manufacturing exports is accompanied by very strong growth in manufacturing imports, and Germany continues to export agricultural products and especially raw materials (such as coal).



Our data allows us to dissect aggregate trade growth much further, down to the level of 5-digit SITC (the product-level) for each trade partner of Germany. The number of products traded increased from 334 in 1880 to 834 in 1913, while the number of trade partners grew from 34 (1880) to 86 (1913). Let us define each product-country combination as a variety. In 1880 we observe 971 import varieties and 1,482 export varieties. A generation later in 1913 we observe 10,145 import and 29,263 export varieties. Following Amiti and Freund (2010), we can decompose aggregate trade growth over all varieties into three margins. First, growth can occur along the intensive margin, where trade in existing varieties is expanding (“more of the same”). Second, there can be growth along the extensive margin, where new varieties enter (either old products are traded with new trade partners, new products traded with old trade partners, or new products with new trade partners). Finally, growth can occur along the extensive margin, where old varieties disappear. Figure 2 shows the relative contribution of each of these margins to Germany’s trade expansion before World War I.



Margins in percent of total trade according to eq. 1. Source: own calculations.


Clearly, the extensive margin dominates the picture. Interestingly, this is true for imports and exports alike. In our paper, we show that the extensive margin dominates growth in all types of trade, manufacturing and non-manufacturing, and trade within and outside of Europe. Even trade growth between Germany and the USA was dominated by the extensive margin. Within the extensive margin, the most important element is the entry of new products in trade with existing trade partners. Moreover, we show that this is unlikely to be a statistical artefact stemming from an increasing level of detail in the historical classification system. If we restrict our attention to only those products and countries that were already recorded in the first year of our sample (1880), the picture remains largely unchanged (although this certainly underestimates the extensive margin).

A related question is whether and to what extent there was intra-industry trade, hence exports and imports of the same products in a given year. In figure 3 we show, separately for non-manufacturing and manufacturing trade, what share of trade is intra-industry, varying the level of aggregation from sectors (1-digit SITC) to products (5-digit SITC).  



Intra-industry trade in percent of total trade, Figure 3A: SITC sectors 0 to 4. Figure 3B: SITC sectors 5 to 8. Source: Own calculations.

We find that even at the product-level, intra-industry trade accounts for between a quarter and a third of all trade, in manufacturing and non-manufacturing. Zooming into this more closely, we find that intra-industry trade was more prominent with rich economies—i.e. mostly with European trade partners.

Overall, our evidence suggests that simple “classical” trade models that focus on differences between countries miss crucial aspects of the first globalization. Once disaggregated trade data becomes available, we see that most of the growth in imports and exports was due not to increase in the value of trade in specific products between trade partners but growth in the number of products and trade partners. Our new evidence for Germany is in line with similar findings for Belgium before 1914 (Huberman et al., 2017) and Japan before 1914 (Meissner and Tang, 2017, 2018). Such growth along the extensive margin may have been driven by changes in trade costs due to improved transportation technology, by rising incomes, or also reflect strategies to differentiate products by branding and quality. But together with the evidence on large-scale intra-industry trade this suggests that heterogeneity within countries and industries should be systematically taken into account.

Yet, “classical” trade models are obviously not dead. At a very broad level they seem to capture, how countries specialized before 1914 – after all, they were invented to capture exactly this. Germany did specialize in manufacturing products, while agriculture in Germany and elsewhere in Europe was increasingly exposed to import competition: the “European grain invasion” (O’Rourke 1997) was very real. Farmers responded either by giving up and leaving agriculture, lobbying for protection, or shifting to different products (Suesse and Wolf 2020).

To us this suggests thinking about globalization along the lines of a hybrid model such as Bernard et al. (2007) that combines comparative advantages at the country-level with heterogeneity at the firm-level. Doing so might have far-reaching implications for our interpretation of the costs and benefits, the winners and losers, and hence for the political economy of globalization. With more disaggregated trade data available for more countries – hopefully in standardised and comparable form -, this is opening the door for a new understanding of the history of globalization.





Amiti, M. and C. Freund (2010), "The Anatomy of China's Export Growth," NBER Chapters, in: China's Growing Role in World Trade, pages 35-56, National Bureau of Economic Research, Inc.

Baldwin, Richard (2016), The Great Convergence. Information, Technology and the New Globalization. The Belknap Press of Harvard University Press, Cambridge.

Bernard, Andrew B., Stephen J. Redding and Peter K. Schott (2007), “Comparative Advantage and Heterogeneous Firms”, Review of Economic Studies, 74, 31–66.

Federico, G. and Wolf, N. (2012). “A Long-run Perspective on Comparative Advantage”, In: G. Toniolo (Ed.), The Oxford Handbook of the Italian Economy since Unification, Oxford: Oxford University Press, chap. 12. 327–350.

Huberman, M., C. Meissner and K. Oosterlinck (2017), “Technology and Geogrpahy in the Second Industrial Revolution: New Evidence from the Margins of Trade“, The Journal of Economic History 77 (1), 39-88.

Hungerland, Wolf-Fabian and C. Altmeppen (2021), “What is a product anyway? Applying the Standard International Trade Classification (SITC) to historical data”, Historical Methods: A Journal of Quantitative and Interdisciplinary History.

Hungerland, Wolf-Fabian and Nikolaus Wolf (2021), “The Panopticon of Germany’s Foreign Trade, 1880-1913. New facts on the First Globalization”, European Review of Economic History (forthcoming).

Jacks, D. and  M. Stuermer (2020), “What drives commodity price booms and busts?”, Energy Economics, 85, 104035.

Krugman, P. (2008), “The Increasing Returns Revolution in Trade and Geography”, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008, Prize Lecture.

Meissner, C., & Tang, J. (2017). “New goods and markets versus more of the same: Japan's entry to world markets during the first age of globalisation”,, 16 June 2017.

Meissner, C., & Tang, J. (2018), “Upstart Industrialization and Exports: Evidence from Japan, 1880–1910”, The Journal of Economic History, 78(4), 1068-1102.

O’Rourke, K. H. (1997), “The European Grain Invasion, 1870-1913”, The Journal of Economic History, 57 (4), 775-801.

Suesse, M. and N. Wolf (2020), “Rural transformation, inequality, and the origins of microfinance”,

Journal of Development Economics, 143, 102429.




Wednesday, 9 February 2022

The paradox of ‘Malthusian urbanization’: Urbanization without growth in the Republic of Genoa, 1300 to 1800

By Luigi Oddo (University of Genoa, Department of Political Science) and Andrea Zanini (University of Genoa, Department of Economics).

From the second half of the 20th century, the role of urbanization in the development process has become an extensively investigated topic. In standard urbanization models, from the pioneering studies by Lewis (1954) on urban pull factors, then passing on the great classics of the subject by de Vries (1984) and Bairoch (1988), who stressed rural push factors, cities have almost always been represented as a factor of economic development in the pre-industrial world. Urbanization levels and city sizes have often been used as empirical proxies for the level of income per capita (De Long and Shleifer 1993; Acemoglu et al. 2002, 2005; Malanima 2005; Maddison 2008; Dittmar 2011).

The role of urbanization as a factor of economic growth has also been included in the literature concerning Malthusian population theory. Clark (2007) and Voigtländer and Voth (2009, 2013) suggested that high urbanization rates helped keep down fertility and to drive up death rates, allowing living standards to rise, but through purely Malthusian mechanisms. Overall, both urbanization models and Malthusian population theory basically support the principle, even if through different mechanisms, city growth was a factor of economic advancement in the pre-industrial world.

However, in the last 20 years, the idea that urbanization level is closely correlated with levels of income and growth has started to be questioned, especially in the literature concerning developing countries (Fay and Opal 2000, Henderson et al. 2013, Gollin et al. 2016). The experience of the Third World in the second half of the 20th century clearly shows that changes in income do not explain shifts in urbanization. Urbanization continues even during periods of negative growth.

On this basis, we aimed to shed light on the relationships between urbanization and economic growth in the pre-industrial era, analyzing the case of an Italian pre-unification state, the Republic of Genoa, from 1300 to 1800 with a novel dataset of cities and rural populations. Genoa was one of the most powerful Italian maritime republics, probably exhibiting one of the highest degrees of urbanization in Europe in the Late Middle Ages. However, the history of the Republic of Genoa was described by cyclical Malthusian stagnations, which were characterized by almost flat-lined growth at the population level (Figure 1). 

Figure 1: urbanization (upper) and population (lower) of Genoa 1300-1800

The coexistence of these contradictory elements raises the following question: is a high degree of urbanization always a sign of economic advancement in the pre-industrial world?

To answer this question, our paper introduces elements of rural-urban migration models within the Malthusian population theory to provide a different perspective on the interactions between urbanization levels and demographic dynamics. Focusing on the Republic of Genoa, this approach brings out that if high levels of urbanization do not reflect substantial increasing productivity in agriculture and growing urban labor demand, urbanization per se is not sufficient to take-off from Malthusian stagnation. Therefore, the rise in urbanization cannot match sustained economic growth. The natural consequence is urbanization growth that follows a stop-and-go trend, where city populations inflate and deflate cyclically. To describe this phenomenon, we coined the term ‘Malthusian urbanization’.

Read the full paper here