We employ a new database of over 21,000 bilateral trade observations from 1870-1913 to assess the contemporaneous effects of empire on trade. Our analysis shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire. The use of a common language, the establishment of currency unions, the monetisation of recently acquired colonies, and the establishment of preferential trade agreements and customs unions help to account for the observed increase in trade associated with empire.

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Theoretical models have suggested that sanctions may be important for enforcing sovereign debt contracts. This paper examines the role of sanctions in promoting debt repayment during the classical gold standard period. We analyze a wide range of sanctions including gunboat diplomacy, external fiscal control over a country's finances, asset seizures by private creditors, and trade sanctions. We find that "supersanctions", instances where military pressure or political control were applied in response to default, were an important and commonly used enforcement mechanism from 1870-1913. Following the implementation of supersanctions, on average, ex ante default probabilities on new debt issues fell by more than 60 percent, yield spreads declined approximately 800 basis points, and defaulting countries experienced almost a 100 percent reduction of time spent in default. We also find that debt defaulters that surrendered their fiscal sovereignty for an extended period of time were able to issue large amounts of new debt on international capital markets. Consistent with policies advocated by Caballero and Dornbusch (2002) for Argentina, our results suggest that third-party enforcement mechanisms, with the authority to enact financial and fiscal reforms, may be beneficial for resuscitating the capital market reputation of sovereign defaulters.

We thank Hugh Rockoff, Noel Maurer, two anonymous referees and seminar participants at UC Berkeley, the NBER-DAE conference, and the EHA Annual Meetings for comments and suggestions. We also thank Lea Halloway for valuable research assistance, Trish Kelly for sharing data, and the Lowe Institute, Leavey Foundation, Dean Witter Foundation, and the Finocchio Fund for financial support. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research.