IMPERIAL LEGACY The Persistence of Colonial Trade Patterns

Several decades after formally attaining independence, many developing countries continue to trade disproportionately with the European countries that once ruled them. Earlier attempts to examine this phenomenon have relied on inappropriate statistical techniques. After reviewing the existing literature, this paper draws on insights from economic history as well as the theory of industrial organization in order to motivate a different approach. History shows that there were crucial differences between the major colonial powers in respect of the nature and duration of the trade-diverting policies they imposed on their colonies; their treatment of different colonies; and of colonial exports as against imports. Theory suggests that when early entrants have sunk costs of marketing and distribution, market size is an important determinant of the entry of new suppliers. These insights are combined in an econometric specification that seeks to explain the market shares of Britain and France in different countries by their size, distance and (where relevant) time since independence. Exploratory tests, using panel data on imports by 119 developing countries for the period 1994-1999, give qualified support to the hypothesis that high market shares for the former colonial powers persist, especially in smaller, nearer, and more recently independent countries.