Topic:A Staged-Development Approach to Trade and Institutions: The Dynamic Process for Establishing the Pearl of the Britain-China Trade Time:2-3:30 pm May 21 (Tuesday)

Location:Guanghua No.2 Building 217

Speaker:Chong Kee Yip (webpage:http://www.cuhk.edu.hk/eco/staff/ckyip/ckyip.htm)

Affiliation:Chinese University of Hong kong

Abstract:To explore the interplays between trade and institutions, we construct a staged development framework with multi-period discrete choices to study the colonization of Hong Kong, which served to facilitate the trade of several agricultural and manufactured products, including opium, between Britain and China. We provide a complete characterization of the endogenous transition from the pre-Opium War era, to the post-Opium War era and then to the post-opium trade era, which span the period 1773-1933. We begin with a brief chronicle of the historical development of Hong Kong and a basic descriptive analysis of the economic data that we collected from limited sources. Based on this information, we then speci?cally design our dynamic model to capture several key features of the colonization process. We show that the low opium trading cost as well as the high warfare cost initially postponed any military action. Nevertheless, the high valuation of the total volume of bilateral trade, the rising opium trading cost and the anticipated increase in the demand for opium eventually led the British government to declare the Opium Wars, which established the legalization of opium trade and the colonization of Hong Kong. We also show that, in response to a drastic drop in opium demand and a rising opium trading cost, it became optimal for the British government to abandon opium trade soon after the founding of the Republic of China. We conclude with a series of historical data and documentation that support our theoretical findings.

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