Trade that ties: Trade communities over two centuries (1833-2025)

Authors:

• Guillaume Daudin (LEDa – IRD, CNRS, Université Paris Dauphine-PSL –– France)
• Béatrice Dedinger (CHSP) – Sciences Po – France)
• Youssef Ghallada, Economic History Department - LSE – United Kingdom)
• Paul Girard (OuestWare – OuestWare – France)

The share of country pairs that trade with each other has risen steadily since the early nineteenth century: globalization is as much about the formation of new trade links as about larger flows of existing ones. We argue that a key force in driving extensive-margin expansion is the structure of pre-existing trade relations. To study it, we build the most comprehensive network of bilateral trade between polities (sovereign countries and colonies) to date, covering 1833-2025. 

For the pre-1947 period we combine the RICardo trade data with the GeoPolHist polity data, and we use a gravity-based allocation procedure, incorporating distance and geopolitical ties (conflict, empire, alliance), to assign trade flows reported between groups of polities to individual pairs. We detect trade communities in this network with the Louvain algorithm every year. Two polities belong to the same community if they trade intensely or, more originally, if they trade intensely with the same partners. As a result, communities may capture shared business and financial networks even absent direct trade. Finally, we estimate a gravity model of the probability that a new bilateral link forms, controlling for distance and geopolitical factors. 

We test whether belonging to the same community raises this probability, consistent with shared information and intermediaries lowering the fixed cost of starting to trade. If this holds, trade communities are a new and important driver of the extensive margin of globalization.