The Economic Consequences of the Opium War

This paper employs new data to study the impact of Western colonial institutions on China’s economy during the 19th century. It is shown that trade and legal institutions in the treaty port areas accelerated industrialization and increased capital market efficiency. The former was driven by technology transfer and market access gains at the ports, while the latter was due to increased security through extraterritorial legal rule at the consular courts. Furthermore, a geographic spillover analysis demonstrates that even though the number of foreign places was relatively small, the Western impact was substantial because it radiated far from the ports and affected most of the country. At the same time, the West’s intervention harmed China’s economy by increasing protest activity organized by secret societies, thereby reducing Qing state capacity. A picture emerges according to which the West’s intervention had a major impact that is neither all-favorable nor all-unfavorable.