CEPII, Recherche et Expertise sur l'economie mondiale
Thursday June 22, 2023
2.30-4.00 pm - CEPII, 20, avenue de Ségur 75007 Paris
"Breaking the ice: The persistent effect of pioneers on trade relationships". CEPII research seminar with Tom Raster, Paris School of Economics

Tom Raster
PhD candidate in Economics,
Paris School of Economics
Tom Raster will present his paper "Breaking the ice: The persistent effect of pioneers on trade relationships".
Nowadays and throughout history, there is substantially less trade than is theoretically predicted and many countries and regions do not trade at all with each other. The lack of first movers on trade links (so-called pioneers) is one hypothesized cause for this underperformance of trade. This paper offers the first causal test of this hypothesis, drawing on millions of captain voyages between the Baltic and North Sea in the period 1500 and 1855 when the number of direct trade links increased 13-fold. For identification, the author relies on two instrumental variables that each quasi-randomly increase captains' information about towns not visited before, nudging them to pioneer them. The first instrument relies on quasi-random encounters with other captains at a trade bottleneck. The second instrument leverages drastic annual variation in sea ice, which exogenously reroutes some captains from historically visited, now frozen towns to towns they or their peers had not previously visited.

Matching captains across their voyages in a panel to establish their habitual trade paths, the author finds that both instruments substantially induce sailing to new towns, i.e., pioneering. Pioneer captains are likely to return to these towns in subsequent periods. Importantly, this also spills over to other captains from the pioneer's town, such that total trade is lastingly increased. The effects are the largest for forced experimentation induced by sea ice. Trade with new towns does not appear to cannibalize existing trade links, and the increase in total trade is also in part explained by an ensuing wave of pioneering. Taken together, these findings highlight the importance of individual pioneering for aggregate trade as well as growth. The author also discusses the conditions under which pioneering has persistent effects and how certain institutions such as guilds restrain pioneering.

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