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The Free Trade Epidemic of the 1860s and Other Outbreaks of Economic Discrimination
Published online by Cambridge University Press: 13 June 2011
Abstract
Why was there an abrupt increase in economic openness in Europe in the 1860s? This increase may have been the result of a contagion process, in which the Cobden-Chevalier treaty between Britain and France threatened to displace third-party exports to France with British exports. As a result, most European states signed similar treaties with France, which had further ripple effects.
This article outlines a formal model of this process, based on the assumption that an agreement between two states increases the desirability of similar treaties to third parties. Propositions regarding the rate and pattern of spread of treaties are derived from this model. This article then discusses the insights these propositions may offer into the rise and fall of the most-favorednation network of treaties between 1860 and 1929.
At a theoretical level the model aims to link the microlevel processes underlying state preferences to system-level phenomena. At a substantive level this analysis offers insight into the current explosion of regionalism.
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References
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12 Oye (fn. 6); and Gilligan (fn. 6). Closely related are the arguments of Destler, I. M. and Odell, John, Anti-Protection: Changing Forces in the United States Trade Politics (Washington, D.C.: Institute for International Economics, 1987)Google Scholar. While they do not directly discuss PTAs, they do point out that potential retaliation from country A in response to protectionist measures in country B may have a very focused distributional impact on exporters in B.
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14 Oye (fn. 6) labels these “divertable externalities,” in that the costs to a particular third party may be diverted to fourth parties by extending the market access to that third party.
15 For example, Grossman and Helpman showed, using a median voter model, that free-trade areas are more likely to garner political support when trade diversion outweighs trade creation; see Grossman, Gene and Helpman, Elhanan, The Politics of Free Trade Agreements, Working Paper 4597 (Cambridge: National Bureau of Economic Research, 1993)CrossRefGoogle Scholar.
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18 Ibid.
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22 Ibid., .327.
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25 This is a relatively reasonable assumption in the domain of trade, where iteration is high, fostering mutual cooperation. See Axelrod, Robert, The Evolution of Cooperation (New York: Basic Books, 1984)Google Scholar. Of course, there may be substantial conflict over the distribution of the gains of cooperation, sometimes leading to mutual defection, as the occasional trade wars of the 1880s and 1890s attest (e.g., France-Italy, Germany-Russia).
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28 Valente (fn. 24).
29 As discussed below, this assumption regarding the distribution of gij greatly facilitates interpretation of the model. All thresholds are also assumed to be independent of each other. Note that in reality this is not likely to be the case; e.g., some states might be especially likely to sign treaties, and some especially unlikely, so one might expect gij to be correlated with gik.
30 A lattice also has the advantage of making it easier to visualize the process of contagion, as the example below illustrates.
31 The exact amount the thresholds should be lowered is arbitrary. Lowering thresholds by 1 has the benefit in terms of ease of interpretation of the simulations in that when a state has δ partners, it will definitely sign treaties with its remaining neighbors.
32 The sum of the thresholds = 40 (number of dyads) × 1.5 (average threshold) = 60.
33 The probability that three treaties will be signed is
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151106083306809-0623:S0043887100009229_eqnU1.gif?pub-status=live)
for δ>2 and otherwise
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151106083306809-0623:S0043887100009229_eqnU2.gif?pub-status=live)
34 Note that there are six distinct degrees of centrality in a 5 × 5 lattice. Additional simulations indicate that centrality of the first mover is monotonically related to the average number of treaties signed in equilibrium.
35 The probability that A will sign a treaty with either B or F in the first round is 1 −(2/3)2 ≈ .56. The proportion of treaties signed in Figure 12 reaches a maximum of approximately .5, which means that if the first mover were large and signed a treaty with at least one other state in the first round, subsequently 90 percent of potential treaties would be signed (on average).
36 Note that this increases the number of potential treaties from forty to seventy-two; the analysis below, of course, examines the proportion of potential treaties that are signed.
37 If the initial actor to sign a treaty is in the corner, the analogous numbers are 29 percent and 69 percent, respectively.
38 While it is prohibitively difficult in this model to analytically derive the probability that a certain number of treaties will be reached in equilibrium, it is simple to calculate the probability that zero treaties will be reached under a given set of assumptions. Specifically, that number is
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151106083306809-0623:S0043887100009229_eqnU3.gif?pub-status=live)
where p is the number of treaty-eligible neighbors the first mover has. Thus, for = 3, in the highly connected scenario (p = 8), this is 3.9 percent; in the less connected scenario (p = 4) this is 20 percent; in the totally connected scenario (p = 24), .006 percent.
39 Note this is different from the preceding assumptions regarding interconnectedness. The reason for this last assumption was that this way all actors in the system have the same level of interactions, thus eliminating geographic centrality as a factor in determining centrality in the network of treaties.
40 There were 0 treaties 82 times (.924 × 1000 = 80), and 1 treaty once.
41 At t = 0, gij is drawn from a uniform distribution between 0 and 10. After the system reaches an equilibrium where every state has a treaty with every other state, the member of each dyad has 23 treaties with nondyad members, so gij = the initial gij − (2 × 23). Thus, to increase the postequilibrium gij. to a positive number, one would need to add between 36 and 46. To put this in more general terms, in a system which has reached an equilibrium where every state has signed a treaty with every other state, and every state has M trading partners, and the initial gij is drawn from a uniform distribution between 0 and, in order to eliminate the treaty between i and j, gij will need to be increased by (2 × M)—the initial gij. Thus, notably, the more interconnected the world (the larger M), the more robust the equilibrium where every state has signed a treaty with every other state.
42 If all treaties with one state, I, were removed, gkl would equal the initial gkl (drawn from between 0 and 10) − (2 × 22), which would be between −34 and −44.
43 For a perceptive discussion of the MFN network of treaties from 1860 to 1929, see Irwin, Douglas, “Multilateral and Bilateral Trade Policies,” in de Melo, Jaime and Panagariya, Arvind, eds., New Dimensions in Regional Integration (Cambridge: Cambridge University Press, 1993)Google Scholar.
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46 Ibid., 429.
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50 An important antecedent condition to this treaty was the general increase in power of Napoleon III and a French constitution that gave the executive (Napoleon III) power to set tariffs in treaties that did not require ratification by the legislature. This institutional setting of executive autonomy determined what Nelson labeled the “supply” conditions of protection and would be exogenous in the model above; see Nelson, Douglas, “Endogenous Tariff Theory: A Critical Survey,” American Journal of Political Science 32 (August 1988)CrossRefGoogle Scholar. A second factor that increased Napoleon's desire to strike a deal with Britain was his aim to acquire Britain's cooperation with respect to his objectives in Italy. See McKeown (fn. 4); and Ratcliffe, Barrie M., “The Origins of the Anglo-French Commercial Treaty: A Reassessment,” in Ratcliffe, , ed., Great Britain and Her World, 1759–1914: Essays in Honour of W. O. Henderson (Manchester: Manchester University Press, 1975)Google Scholar. As noted above, for each dyad there will be a variety of idiosyncratic factors that affect the tendency of that pair to sign a treaty.
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54 More than a third of Belgian exports went to France at this time—162m francs out of total exports of 470m francs; see Mitchell (1975), 489, 506. It exported about as much to France as to its next two largest trading partners combined; e.g., in 1860 its exports to France were valued at 162m francs, and to Germany and the U.K., at 169m francs.
55 Ashley (fn. 21), 32.
56 Memo, Joseph Crowe (consul-general for the Kingdom of Lower Saxony) to Lord Russell, May 15, 1861, as originally cited in Marsh (fn. 49), chap. 3.
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59 Bairoch (fn. 53), 40; see also Figure 15.
60 This period was chosen because many of the treaties stated that they would come up for renewal in ten to twelve years, and the data on the renewal of particular treaties are incomplete. It is at least possible to say with some reliability that the treaties captured in Figure 15 were actually in force during this time.
60 This period was chosen because many of the treaties stated that they would come up for renewal in ten to twelve years, and the data on the renewal of particular treaties are incomplete. It is at least possible to say with some reliability that the treaties captured in Figure 15 were actually in force during this time.
63 Of course, this is less puzzling if one views Britain as the benevolent hegemon rather than as an exploitative hegemon; see Snidal, Duncan, “The Limits of Hegemonic Stability Theory,” International Organization 39 (Autumn 1985)CrossRefGoogle Scholar. One might hypothesize that Britain encouraged other states to sign treaties as part of its effort to decrease trade barriers in the international system. There is no evidence to support this hypothesis, and some that contradicts it, e.g., Fuchs (fn. 62); and Marsh (fn. 49).
64 Fuchs (fn. 62), 29.
65 Marsh (fn. 49), chap. 2.
66 Ibid., chap. 3.
67 Ibid.
68 Ibid.
69 Landes (fn. 44), 440.
70 Thus, for example: “The particular blend of worsted wear in which Bradford specialized included warps of cotton, which remained cheaper than wool, to produce a hard and lustrous cloth which went well over the crinolines of the day, better than the more expensive all-woolen worsteds in which the French specialized”; Marsh (fn. 49), chap. 3.
71 Dunham (fn. 51), 88.
72 Fuchs (fn. 62), 31–32.
73 Ibid., 59.
74 Ibid., 30–31.
75 Irwin (fn. 43).
76 Fuchs (fn. 62), 64.
77 Ibid., 65.
78 Ibid., 66.
79 Ibid., 70.
80 Irwin (fn. 43), 105.
81 Note that these levels were significantly higher than pre-World War I levels.
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84 See also Yi (fn. 23).
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