Does the Colonial Trade Premium Still Exist? Sectoral and Temporal Dynamics in the Structural Gravity Model

Abstract

Colonial trade premiums persist in primary commodities but vanish in high-technology sectors. Whether this divergence reflects a uniform decline modulated by sector characteristics or fundamentally distinct dynamics across product categories remains unresolved. This paper estimates a sectoral PPML structural gravity model using 5.67 million bilateral trade observations spanning 111 countries, 16 WITS sectors, and 29 years (1995–2023). Three results stand out. First, the aggregate colonial premium of 18.6% conceals sectoral coefficients ranging from +101.6% in fuels to −33.7% in transportation equipment. Second, colonial trade in primary sectors grows at 0.25% per year, while colonial trade in high-technology sectors contracts at 0.72% annually—a pattern robust to pair×sector fixed effects that absorb all time-invariant bilateral heterogeneity. Third, a quadratic specification identifies a turning point around 2013, after which the aggregate premium begins to erode. The sectoral decomposition reconciles contradictory findings in the literature by showing that what appears as colonial decline at the aggregate level is a compositional shift from primary-commodity dependence toward diversified, non-colonial sourcing in manufactures and technology.