Colonial Wars and Trade Restrictions: Fighting for Exclusive Trading Rights

33 Pages Posted: 7 Jan 2022

Date Written: November 22, 2021


This paper develops a simple model of colonial wars and trade restrictions. Two metropolises compete to gain control over the trade policy of a colony. In equilibrium, the winning metropolis can improve its own terms of trade by restricting trade flow between the rival metropolis and the colony. In practice, however, the metropolis may find it difficult to impose such restrictions without impacting trade flow between itself and the rival metropolis. In this situation, three equilibrium configurations emerge: (i) peace and free trade (both metropolises value trade flow with their rival more than they value colonial trade); (ii) war and only colonial trade (both metropolises value colonial trade more than they value trade between themselves); or (iii) war and either free trade (the winner values trade flow with its rival more than colonial trade) or only colonial trade (otherwise). The model explains the three main features of the mercantilist era: enormous expansion of overseas trading, colonial wars, and trade restrictions. It also suggests several explanations for the demise of mercantilism.

Keywords: colonies, trade, war, conflict, trade policy

JEL Classification: D74, F13, F5

Suggested Citation

Lopez Cruz, Ivan and Torrens, Gustavo, Colonial Wars and Trade Restrictions: Fighting for Exclusive Trading Rights (November 22, 2021). Available at SSRN: or

Ivan Lopez Cruz

Sabanci University ( email )

Faculty of Arts and Social Sciences
Istanbul, 34956
216 483 9337 (Phone)

Gustavo Torrens (Contact Author)

Indiana university ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)
47405-7104 (Fax)

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