In the aftermath of the Opium Wars, China was forced to accept a new and significant Western presence. Previously closed ports of trade were pushed open, tariffs were reduced, and former Chinese trade institutions of customs collection were abolished and re-organized under British and Western management practices. In addition, extraterritoriality was legitimized in the Sino-American Treaty of Tientsin of 1858. Foreigners had the right to own property, trade and carry on manufacturing according to the laws of their own state rather than Chinese law. The Most Favored Nation clause, present in many of China's treaties, automatically granted to all Treaty Powers the rights which China was compelled to allow to any one nation, expanding the influence of the Treaty Powers as a block. To enforce these rights, Western nations soon established courts in China in order to adjudicate disputes related to civil, criminal, and property law. Thus, the British had the British Supreme Court for China, the U.S. set up the U.S. Court for China, and consular courts from each of the other Treaty Powers were also established.

This project examines this controversial period of history from 1842-1948 when Britain and other Treaty Powers had a hand in determining economic policy both inside the borders of China and in the international trading arena. The investigators focus on two of the most significant types of institutional change that were imposed by foreign powers on China in the 19th century: the dismantling of trade barriers and commercial property law. The Chinese Maritime Customs Service (CMC), although Chinese in name, was mainly built up under British direction, and operated continuously between 1859 and 1948 to assess tariffs and record the quantity and value of shipped goods of both foreign and domestic origin. In 1928, the CMC effectively became the international custodian of China's single largest source of government revenue. Even though much of this revenue was used to pay indemnities, the CMC was instrumental in establishing the international credibility of public finance in China.

To test the hypothesis that the opening of trade had significant effects on world prices, the researchers exploit a partially completed database on China from the CMC in order to assess the impact of trade on domestic welfare in China. A significant part of the project is to draw on the amazingly rich quantitative information that has so far been largely neglected in order to evaluate the legacy of this era. They estimate that the project, once completed, will record 7.5 million observations on trade flows. This level of detail is highly unusual, and comparable port-level information is in fact not collected in any contemporary country. In this project, the investigators thus extend the set of new empirical approaches found to be feasible with historical data, and they expect this data will have many other research applications in economic history and international trade.

In addition, since gains in living standards are the most important consequence that trade ultimately provides to society, this project emphasizes the relationship between welfare and trade opening. The authors analyze the additional welfare gains arising from new goods variety, an important consequence of the opening of trade that has been generally overlooked in past analyses, but more importantly, they show that a direct calculation of the factors determining the size of variety gains from trade is feasible using historical Chinese data. This is the first time an estimate of this sort has been presented for a historical period.

Finally, the gains in welfare can also come about because more trade and investment takes place due to improved security of property in the treaty port. Scattered anecdotal reports suggest the presence of foreign institutions mattered, and may even have had positive spillover effects. Capital market improvements could have broad implications for attracting foreign firms to China, which in turn can lead to additional capital accumulation and income gains. In this project, the researchers also investigate the possibility that institutional changes by the British and other treaty powers' take-over of treaty port organization had an economy-wide impact.

This research examines the extent to which China's role in Asia and the world today is shaped by the organizational, entrepreneurial, and social skills of its population on the one hand, and by foreign intervention on the other hand. The work highlights the possibility that the impact of foreign imperialism in the 19th century goes beyond simple measures of China's foreign trade-per-capita in the 19th century or overall economic growth rates. The results from the project aim to provide important reference points in understanding the trade history of China, and to give a more definite empirical link between performance in the past and the present.

More broadly, it will allow one to see if there are more general lessons on foreign-induced reform that can be learned from China. As the world moves forward into the 21st century, the answer to these questions could suggest new ways in which the social and economic history of nations are intertwined.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Georgia Kosmopoulou
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National Bureau of Economic Research Inc
United States
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