Week7 Meissner Tang2018

Upstart Industrialization and Exports:
Evidence from Japan, 1880–1910

Christopher M. Meissner and John P. Tang
Between 1880 and 1910, Japanese exports increased in volume, changed

composition, and shifted from leading industrialized countries toward poorer
Asian neighbors. Using a new dataset disaggregated by product and trade partner
for the universe of Japanese exports, we find extensive margins accounted for
30 percent of export growth, with trade costs and market size associated with
successful market entry. There was also considerable persistence in maintaining
market presence and exit was rare. These stylized facts provide insight into both
the country’s economic development, as reflected in its exported products, as well
as the demand conditions of its trade partners.
D uring the wave of globalization that spanned the turn of the twen-
tieth century, countries largely produced and exported based on their
comparative advantage. This view of global market integration, sometimes
referred to as the “Great Specialization” (Findlay and O’Rourke 2007), is
based primarily on the experience of Great Britain, which was the leading
industrial economy that specialized in manufactures and exchanged these
for raw materials. Comparative advantage is often regarded as deriving
from factor endowments of labor (skilled and unskilled), land, and
capital that were persistent despite the unprecedented factor market inte-
gration of the nineteenth century. Standard trade theory based on factor
endowment-driven trade and applied to historical patterns of international
product flows appears to conform to this interpretation for many coun-
tries. One notable exception, however, was late nineteenth century Japan,
which emerged from relative isolation as a traditional agrarian economy
to become a major exporter of manufactured goods by the eve of WWI.
The Journal of Economic History, Vol. 78, No. 4 (December 2018). © The Economic History
Association. All rights reserved. doi: 10.1017/S0022050718000517
Christopher M. Meissner is Professor of Economics, University of California, Davis and
NBER, Department of Economics, One Shields Avenue, Davis, CA 95616. E-mail: cmmeissner@
ucdavis.edu. John P. Tang is Senior Lecturer, Australian National University, Research School of
Economics, 26 LF Crisp Building, Canberra ACT 2601, Australia. E-mail: [email protected].
We have received valuable comments from three anonymous referees, William Collins,
Dennis Novy, David Weinstein, and seminar and conference participants at UC Berkeley, UC
Davis, Hitotsubashi University, University of Barcelona, University of Valencia, University of
Zaragoza, the Australasian Cliometrics Workshop, and the Asian Economic History Conference.
We are grateful to Adam Huttner-Koros and Dek Joe Sum for research assistance. This research
is supported by the Australian Research Council (DE120101426) and a small grant from the UC
Davis Faculty Senate.
1068
Upstart Industrialization and Exports 1069
This transition was both rapid and dramatic: in 1880, primary product
exports exceeded manufactures fourfold, but by 1910 these shares were
reversed even as total export values rose from 26.6 to 434.7 million
yen.
How Japan managed to integrate into the world economy while avoiding
specialization in primary production remains poorly understood despite
substantial scholarship on its industrialization. The country’s industrial
potential and export success could not be explained by static comparative
advantage alone as it had little exposure to modern manufacturing at the
time of its forced trade liberalization in the 1850s. Trade policy also did
not matter since it was constrained by long-standing international trea-
ties which kept tariffs at modest levels. Most of its early exports were
specific products produced with traditional methods (e.g., silk and tea),
and its relatively abundant labor force was cheap and unskilled. In the
subsequent half century, however, Japan underwent a transformation by
rationalizing industrial activity, adopting and diffusing new technolo-
gies, integrating its product and financial markets, expanding education,
and earning export revenues to finance its domestic development (Tang
2014; Tang 2016; Mitchener and Ohnuki 2009; Passin 1965; Makimura
2017).
We contribute to this literature by exploring in greater detail the
external dimension of this transition, specifically looking at Japanese
export patterns and possible determinants of their expansion. Our newly
collected data on highly disaggregated Japanese exports to its universe
of trade partners allow us to decompose the various margins of export
growth and to assess various explanations underlying their trends. For
example, static comparative advantage suggests intensifying production
and export of goods based on a given factor endowment and trade costs
as opposed to expanding into new product lines or markets. We find that
while the intensive margin was important, accounting for two-thirds of
export growth between 1880 and 1910, extensive growth was also consid-
erable. At the three-digit Standard International Trade Classification
(SITC) level of trade product aggregation, Japan increased the number
of goods exported from 67 to 116 and the number of export destinations
rose from 17 to 31. Expansion in product types and destination markets is
also reflected in the country’s reorientation toward less developed, more
geographically proximate trade partners.
Results from regression analysis indicate that besides traditional trade
costs, market intelligence, political economy, and market demand factors
also played significant roles in Japanese export growth. We find that even
as Japan expanded into new goods and markets, it rarely exited from any
1070 Meissner and Tang
and that establishing new trade partnerships increased the probability of

entry into other markets. This dynamic dimension to market entry and
the inclusion of market demand effects and product specific factors are
features not commonly emphasized in either the contemporary or the
historical trade literatures. Our article is among the first to systemati-
cally study these issues for any country in the first wave of globalization.1
Taken together, our data and analysis provide a more thorough examina-
tion of how Japanese exports grew and why.
EARLY JAPANESE INDUSTRIALIZATION AND EXPORTS, 1880–1910
The Japanese economy began to industrialize in the second half of

the nineteenth century, following its forced opening to international
trade in the 1850s by western powers. Despite a modest natural resource
endowment, an economy based on subsistence agriculture, and a political
revolution culminating in the 1868 Meiji Restoration, over the next half
century the economy rapidly increased its manufacturing share and trade
volumes to become the region’s leader in modern economic growth and
ultimately the first non-western, industrial economy. By around 1900,
Japanese manufacturing as a share of total output matched that of the
United States, with an increasing emphasis on more capital and resource
intensive sectors (Perkins and Tang 2017). This was owed in part to
substantial investment in domestic infrastructure like railroads, which
increased scale and agglomeration economies (Tang 2014), and the
country’s adoption and diffusion of foreign technologies, which matched
or exceeded that of leading industrial economies like the United States
(Nicholas 2011; Saxonhouse 1974; Tang 2016).
Modernization of the domestic economy occurred alongside dramatic
growth in trade, with Japan starting from virtual autarky in the mid-
nineteenth century and averaging nominal growth of more than 9 percent
per annum in the four decades up to WWI (Japan Statistical Association
1987). Exports and imports rose in tandem and were mostly balanced over
the period, with trade accounting for a quarter of value added output by
the early 1900s. The composition of that trade, however, changed signifi-
cantly and in part reflected the evolving structure of domestic production.
1
Howe (1996) and Sugiyama (1988) are two modern contributions to the Japanese historiography
on directly related issues, but both are much more limited in scope in terms of quantitative
analysis and their coverage of data than our study. Huberman, Meissner, and Oosterlinck (2017)
examine similar data for Belgium, but they did not pursue the determinants of market entry at the
product level. Both Belgium and Japan are similar in terms of being relatively small markets and
spatially challenged (home market effects for Belgium, geographic distance to key markets for
Japan).
Foremost among the modernizing industries was textiles, which was

consistently the largest export earner and adopter of foreign technologies
(Makimura 2017; Saxonhouse 1974). Exports within this broad sector
shifted from raw materials (e.g., silk cocoons) to higher valued-added
products like finished fabrics and apparel while the opposite occurred in
imports (Perkins and Tang 2017). The importance of higher value-added
textiles is highlighted by cotton thread, which in 1910 was the single
largest export and represented 42 percent of all exports, with silk fabrics
and textiles taking second place with 8.5 percent of exports. Trade in
minerals, processed metals, and machinery exhibited a similar but less
marked transition, with exports of higher valued-added goods increasing
and imports of the same decreasing in share over time.
Upgrading in value-added production might be considered surprising
given Japan’s lack of tariff autonomy until the first decade of the twen-
tieth century, which owed to a series of “unequal” treaties signed with the
leading European countries and the United States. Until the end of the nine-
teenth century, Japanese tariff protection averaged below 4 percent, gradu-
ally doubling over the first decade of the twentieth century until the war.
Given the country’s inability to protect its nascent modern manufacturing
sectors during its period of rapid industrialization and trade expansion,
Japanese trade policy is unlikely to have affected observed trade patterns.
Ricardian comparative advantage or a factor endowment driven theory
of trade are also seemingly insufficient to explain Japan’s emerging
prowess in manufacturing as they would predict Japan specializing in
raw silk and low-skill labor-intensive manufactures (Williamson 2011;
Galor and Mountford 2008).2 Instead, trade costs may more plausibly
explain Japan’s reorientation away from European markets. Asia was
much closer and the United States had just completed its transcon-
tinental railroad in 1869, opening up direct trade routes to Asia from
its West coast. Over this period, there were also a number of exog-
enous events that facilitated Japanese exports such as pebrine disease,
which wiped out European raw silk production in the mid-nineteenth
century, and unexpected victories in the 1894–1895 Sino-Japanese and
1904–1905 Russo-Japanese wars. The wars provided Japan with its first
imperial colony of Taiwan and privileged access to Chinese resources
2
Williamson (2011, pp.71–72) argues that Japan had a “latent” comparative advantage in cotton
goods prior to 1853 and capitalized on it after escape from autarky. This seems unlikely since
Japan’s raw cotton and thread production was wiped out following its opening to international
markets, replaced with imports of cotton thread prior to the 1880s. From the 1880s, Japan rapidly
increased imports of cotton fabric in which Japan remained “un-competitive” (Sugiyama 1988,
p. 66). Sugiyama (1988) does not isolate cotton goods (neither fabric nor thread) as a traditional
export instead focusing on tea and raw silk.
and markets.3 Formal annexation of Korea in 1910 only furthered Japan’s

political and commercial ambitions.
Most analysis of Japanese trade has focused on national aggregates or
limited numbers of products, which are useful in understanding general
trade patterns and potential welfare gains from trade, but neglect the detail
available in more disaggregated trade statistics. In particular, aggregated
series are unable to explain the timing of entry into particular markets,
the sequencing of market entry, and the particular goods exported to a
particular country. For example, greater variation within a product cate-
gory (e.g., quality, unit price) may provide evidence about the types of
goods demanded by different markets, so even if low cost Japanese labor
mitigated productivity or trade cost disadvantages as a whole, it is unclear
that the composition of exports would be similar across trade partners.
Moreover, consumers in wealthier countries prefer relatively expensive
high quality manufactures compared to poorer economies (Hallak 2006),
which may explain why exports of comparatively cheap, low-quality
Japanese manufactures expanded faster in low income markets.4
In sum, to become internationally competitive, Japan not only
had to invest in domestic infrastructure and navigate international
economic and political changes, but also reduce trade costs and
produce differentiated products for its various trade partners. In
the absence of equivalently detailed domestic output data, we use
highly detailed export data as their proxy to show how the economy
changed over time and to identify which factors were more likely
to have contributed to the observed patterns of export growth.
DATA: DISAGGREGATED EXPORTS FOR JAPAN, 1880–1910
Our article is the first to digitize and analyze the universe of bilateral,
product-level data for Japanese exports every five years from 1880 until
1910 (Meissner and Tang, 2018). The data sources are the official trade
returns from Japan’s customs bureau, which collected the data annually
starting in the 1870s (Ministry of Finance 1880–1910). Until the 1880s,
3
The Sino-Japanese war also provided an indemnity which assisted with Japan’s conversion to
the gold standard in 1897.
4
Howe (1996, p. 134) noted that in 1900 “manufactures produced by newly-acquired
manufacturing technology proved far more successful in Asian Markets. This was because in
these markets either the trade-off between price and quality levels embodied in Japanese goods
was attractive to local consumers or Japan had the political power to obtain access to the market,
or a combination of both…” His data for 1900 showed that the share of “new” goods exports
was much higher in exports for LDCs (mainly in Asia) while “traditional” exports of silk goods,
pottery, and raw silk had higher shares to advanced economies.
data collection was inconsistent and incomplete, but thereafter data quality
improved significantly. The data provide export destination, total value,
quantity, and physical unit measures for some products, and a text-based
product description. To classify these data, we hand-coded each product
with a unique SITC Revision 2 classification. While some products can be
described up to the five-digit level, the majority of the products are clas-
sified at the three-digit level of disaggregation. We use this level in our
analysis as it captures more than 95 percent in value for each year of data
and thus is representative of the cross section of exports over the entire
period.5 Furthermore, using the standardized three-digit classification level
allows us to compare products across all types of exports consistently and
to estimate results using standard statistical methodologies. The Online
Data Appendix lists the 440 products by their original description and the
associated SITC three-digit classification. Since the Japanese classifica-
tion is significantly finer than the SITC three-digit categorization, there
may be some under-estimation of the trends in growth of new products.
Even so, in our starting year of 1880, Japan exported 67 unique goods
at the three-digit level and by 1910 this increased to 100. Over the same
period, there were a total of 116 goods exported since some appeared and
later disappeared; only 100 remained active in 1910. We retain exiting
goods in our data because in principle such goods could be re-launched
and “zeroes” provide information about the inability to sell in export
markets. In terms of destinations, we have up to 76 potential destinations.
The 76 destinations are those from Michael Huberman, Christopher M.
Meissner, and Kim Oosterlinck (2017). Japan actively exported at least
one product to 17 different countries in 1880. In 1910 the number stood
at 31. There were no partner exits. Forty-five of the 76 destinations never
imported from Japan in this period according to official Japanese sources.
We classify them as receiving no exports from Japan. For these 45 desti-
nations, we collect as much information as possible on trade costs and
market size, which we describe later, since these effective “zeroes” also
provide information about when trade costs were prohibitively high.
Table 1 provides the nominal value of trade, ratio of exports to value-
added, number of active destinations, number of active product lines, and
number of distinct goods that could be potentially exported. Although the
scaling by value-added gives a sense of real trade growth, we generally do
not deflate the nominal trade data since many of our comparisons will be
within product comparisons and time dummies in our regression models
5
At the four-digit level, total average value captured drops to 88 percent and at the five-digit
level to 24 percent.
Table 1
SUMMARY OF JAPANESE EXPORTS, 1880–1910
Cumulative Percent
Growth of Exports Ratio of
Export Value between Benchmark Exports to No. of No. of
Year (Yen) Years Value-Added x 100 Goods Destinations
1880 26,644,601 — — 67 17
1885 34,216,514 28 4 80 19
1890 52,042,965 52 5 85 24
1895 128,902,768 148 9 87 25
1900 188,410,639 46 8 86 29
1905 303,591,398 61 11 86 30
1910 434,655,789 43 12 100 31
Note: Goods are measured at the three-digit SITC (Rev. 2) level. Value is in nominal yen.
Columns for goods and destinations are for active exports and are a subset of the universe of
goods that were ever exports over the period (e.g., by 1910 there were 116 distinct goods that had
been exported).
Source: Ministry of Finance (various years) and authors’ calculations. Value added data, which
begins in 1885, are from Ohkawa, Takamatsu, and Yamamoto (1974).
sweep away variation coming from common price trends. Export price
indices are available in principle or can be constructed from our data,
but since the focus of our article is on new goods, designing an appro-
priate export price index to properly account for new goods with these
data would be a challenge. In addition, goods without uniform physical
quantities are difficult to include in such price indices and these include
significant goods in the manufactured goods list. In contrast to Simon
Evenett and Anthony Venables (2002) who restrict attention to trade
values above several thresholds given data errors and one-off exports, we
use all available data for our study.
Besides the disaggregated trade data, we have also assembled a data-
base with variables that proxy for trade costs used in the empirical trade
literature. The first is maritime shipping distances in nautical miles. We
have information for three leading ports in Japan: Nagasaki, Yokohama,
and Kobe. Distances are also available for multiple ports for some destina-
tion countries (e.g., China). We use the simple average shipping distance
across all Japan-partner pairs in our data (Whittingham and King 1947).6
6
Distances, which are for steamships, changed mildly over time and by source, but in insignificant
amounts for those ports where we have observations during the period. We supplement these with
data from the National Geospatial Intelligence Agency (2001) for some ports. We also combine
data for Asiatic Russia and European Russia into one destination because GDP is available only
for the country as a whole. We use the average distance between Japanese ports and the two main
ports Vladivostok and Odessa. The distance to Asiatic Russia is 662 nautical miles from Nagasaki
to Vladivostok while it is 8,671 to Odessa.
We also hand-collected Japanese diplomatic representation abroad and

foreign diplomatic representation in Japan from the Almanach de Gotha
(various years). We record the presence of consular or diplomatic staff in
each country or in Japan by using the yearbook’s detailed biographical
list of such staff.
Finally, we include information on whether Japan had a fixed exchange
rate with a destination because exchange rate uncertainty and volatility
have been cited as important to trade costs in the literature (Estevadeordal,
Frantz, and Taylor 2003; López-Córdova and Meissner 2003; Mitchener
and Weidenmier 2008; Mitchener and Voth 2011). These data are from
Christopher M. Meissner (2003) and Lawrence H. Officer (2014), while
data on whether a destination had signed a treaty with a Most-Favored
Nation (MFN) clause with Japan are from the House of Commons
(1908), Ministry of Foreign Affairs, Japan (1918), and the United States
Tariff Commission (1922). In terms of market characteristics, we use real
GDP and population from the Angus Maddison project (2015). We also
supplement some population data not in Maddison from the Almanac de
Gotha yearbooks.
DECOMPOSITION: DIVERSIFICATION OF JAPANESE EXPORTS
Between 1880 and 1910, Japan diversified its exports on two major
dimensions: from mainly exporting raw and low value added commodi-
ties to manufactured goods, and from serving its near neighbor China
and leading rich countries in Europe and the United States to a broader
set that included smaller and poorer Asian economies. As shown in
Figure 1, Japanese exports in primary products (e.g., food and live
animals, non-food crude materials, fuel) steadily fell from more than 80
percent in 1880 to less than 20 percent by 1910. General manufactured
goods (e.g., textiles, furniture, and household items) rose from less than
10 percent of exports to nearly 70 percent in 1910, with the remainder
comprising machinery and miscellaneous manufactures. Initially,
Japan focused on exporting non-fuel raw material, principally raw
silk and silk waste as well as food and animal products. Manufactures
including cotton thread, other cotton products, and finished silk goods
amongst other manufactured goods dominated Japanese exports by
1910.
With regard to export destinations, Figure 2 shows falling shares of
total exports for North America (i.e., United States) and Europe, from
nearly 80 percent of total exports in 1880 to 60 percent by 1910. Asian
countries extend their export share from 20 percent in 1880 to nearly
100%
90%
80%
Share in Japan's Exports by SITC 1 Code
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
Goods n.e.c. Animal and veg. oils, fats

etc
Misc. Manufactured articles Mineral Fuels, Lubricants
etc
Machinery and Transport Crude Materials, Inedible
Equipment except Fuels
Manufactured Goods Beverages and Tobacco
Chemicals and related Food and Live Animals
Figure 1
SHARE OF EXPORTS BY SITC ONE-DIGIT CATEGORY
Notes: Figure shows the total export share in each one-digit SITC (Rev. 2) category. Note that
the order of the products from top-to-bottom within the figure corresponds to the ordering on the
legend from top-to-bottom.
Source: Ministry of Finance (various years) and authors’ calculations.
40 percent by 1910, with Chinese dominance within Asia fading.7 Trade

with Oceania (i.e., Australia) was small but rising. This is consistent
with a Herfindahl index of concentration, which decreases from 0.3 to
7
Hong Kong, a British colony during this period, appeared in Japanese export statistics starting
in 1890, and we treat it separately from China. While combining both series would show a steady
increase over time, we retain the separation for our statistical analyses since we are unable to
determine whether trade was diverted from China to Hong Kong.
100%
90%
80%
70%
Region's Share in Japan's Exports
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
Oceania Europe
SA Africa
NA Asia
Figure 2
SHARE OF SIX REGIONS IN JAPAN’S EXPORTS, 1880–1910
Notes: Figure shows the total export share for six regions for Japanese exports.
0.2 between 1880 and 1910.8 Combining both dimensions of commodity

type and export destination for Japan’s top export markets, all exhibit the
same pattern of increased manufacturing share as shown in Figure 3.
These two extensive margins of export growth have been investigated
in recent theoretical and empirical trade research as ways to explain
changes in trade flows (Chaney 2008; Eaton and Kortum 2002; Helpman,
Melitz, and Rubinstien 2008; Huberman, Meissner, and Oosterlinck
2017; Melitz 2003). The rationale for doing so is that in nearly all models
of trade, (e.g., Ricardian, factor endowment, and those driven by a love
of variety) trade costs matter for the direction of trade.9 Not only do trade
8
We calculate the index using the sum of squared destination trade shares for each quinquennial
year for the period.
9
Models based on Krugman (1979) with no fixed market entry costs predict no “zeroes” in
trade flows and all firms export to all destinations, which finds little empirical support.
USA
100%
90%
Share in Japan's Exports by SITC 1
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
China
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
France
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
Food & Live Animals Beverages & Tobacco Crude Materials

Miner al Fuels, Lubricants Animal and Vegetable Oils & Fats Chemicals
Manufactured Goods Machinery and Transport Equipment Misc. Manufactured Articles
NEC
Figure 3
SHARE OF EXPORTS BY SITC ONE-DIGIT CATEGORY FOR TOP NINE
DESTINATIONS
Notes: Figures plot the share of total exports by value for all ten SITC one-digit codes on the
y-axis. The x-axis covers every five years between 1880 and 1910.
UK
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
Hong Kong
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1890 1895 1900 1905 1910
Year
British India
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1890 1895 1900 1905 1910
Year

NEC
Figure 3 (Continued)
DESTINATIONS
Germany
100%
Share in Japan's Exports by SITC 1 90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year
Korea
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1885 1890 1895 1900 1905 1910
Year
Australia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1880 1885 1890 1895 1900 1905 1910
Year

NEC
Figure 3 (Continued)
DESTINATIONS
costs determine the amount of each product shipped, but they also deter-
mine whether a product or destination is “active” since fixed entry costs
must be covered for firms to be willing to ship to a destination.
Furthermore, intra-industry trade is well-documented and nations at
similar stages of development engage in significant trade even during the
first age of globalization. Often factor-endowment driven models as well
as Ricardian models assume that countries source a good from the single
cheapest supplier, implying “complete specialization,” which was true
neither in the nineteenth century nor today. Given multiple suppliers of a
particular product in a destination market (e.g., Chinese and Japanese silk
in the United Kingdom), it may be the case that quality matters such that
even ostensibly high price producers (low productivity or high quality)
can compete with sellers offering lower prices associated with either high
productivity or low quality.
The underlying theory provides direction to explore which deter-
minants were responsible for Japanese export growth. In particular,
following Jonathan Eaton et al. (2008), one can decompose exports by
their extensive and intensive margins, the former being expansion in new
products or trade partners and the latter in existing trade relationships.
Formally, we decompose the percentage growth of exports (X) into goods
by trade partner that continue from previous years, those that enter, and
those that exit. Formally we have:
X dt − X dt −1  ∑ k ∈CN dt−1,t ( xdt −1 )   ∑ k ∈CN dt−1,t ( xdt − xdt −1 ) 

k k k
=  
X dt −1  X dt −1   ∑ k ∈CN t −1,t ( xdtk −1 ) 
d
k
EN dt−1,t xdt −1 ∑ k ∈EN dt−1,t ( xdt − xdt −1 )
+ +
X dt −1 X dt −1
k
EX dt−1,t xdt −1 ∑ k ∈EX dt−1,t ( xdt −1 − xdt −1 )
− − .
X dt −1 X dt −1
In this decomposition Xdt is the total value of exports from Japan to a

destination, or group of destinations, d in period t, and xdt–1 is the value of
exports of product k in period t – 1. We break the set of goods into three
sets such that CNdt–1,t denotes continuing goods (i.e., the set or number
of goods that are exported in period t – 1 and year t); ENdt–1,t denotes
entering goods (the set or number of goods exported in period t but not
in t – 1); and EXdt–1,t comprises exiting goods (the set or number of goods
exported in t – 1 but not in period t). The term x–dt–1 is the average value
of exports to destination d in the previous period. These three groups of
goods can further be separated into new or existing trade partnerships as
a second dimension of the extensive-intensive margin decomposition, as
shown in Table 2.
The first two terms on the right side of the equation represent the
contribution of growth in exports from continuing goods. The first term
is the share of total exports in the previous period of goods that continue
to be exported, while the second term is the percentage growth rate of
such goods between observation years. The next four terms allocate trade
growth to value arising from new goods and then goods that exit. Note
that the shares attributable to gross entry and exit depend not only on
the number of goods entering or exiting but also to their value relative
to average exports. Decompositions of trade in the past have found that
entrants are usually small in value relative to continuing goods. This
feature of the data is one reason that short-horizon decompositions find
smaller shares for extensive margin growth than the intensive margin. A
longer horizon will allow the new, initially low value goods to contribute
more to overall trade growth in subsequent years.
Table 2 provides these decompositions in percentage terms for each
five year interval and the three decades as a whole. We group the decom-
positions by good type (i.e., continuing, new, exiting) and within each
of these by destination (i.e., continuing, new) and economy type (i.e.,
advanced, developing).10 The final column of Table 2 shows that expan-
sion of exports of products already exported in 1880 to the same trade
partners in that year and for the entire 30 year period (i.e., intensive
margin) account for 70 percent of growth, with exiting goods of any type
accounting for less than 0.3 percent. The remaining growth can be sepa-
rated along the two extensive margins of new goods (3.7 percent), new
destinations (24.6 percent), or both (2 percent). Alternatively, for new
exports over the entire period to both new and continuing trade part-
ners, their contribution is approximately 5.6 percent of export growth; for
new destinations regardless of export type, it is about 26.6 percent. These
breakdowns indicate that for extensive growth, entry into new markets
was significantly more important than the export of new goods.11
10
Advanced economies include United States, United Kingdom, France, Luxembourg, Italy,
Germany, Australia, Holland, Belgium, Denmark, Sweden, and Norway; remaining countries are
designated as developing.
11
These results are for the three-digit product classification level, which may understate market
churn at more detailed levels. However, since the value of exports accounted for at higher levels
substantially falls, the results may not be representative.
Table 2
DECOMPOSITION OF MARGINS OF TRADE FOR ALL DESTINATIONS, 1880–1910
Percent Growth by Year or Period 1885 1890 1895 1900 1905 1910 1880–1910
Continuing exports
Continuing destinations 84.66 24.65 98.61 91.04 91.28 91.57 70.04
Advanced economies 54.90 38.10 72.78 2.54 46.35 67.03 48.48
Developing economies 29.76 –13.45 25.83 88.50 44.93 24.54 21.56
New destinations 9.64 74.70 1.10 2.73 4.95 7.10 24.61
Developing economies 2.87 61.10 0.66 2.15 4.59 0.72 18.96
New exports
Continuing destinations 7.46 0.56 0.31 6.08 5.74 1.43 3.65
New destinations 0.35 0.08 0.00 0.05 0.03 0.00 1.99
Exiting exports –2.11 0.00 –0.02 –0.02 –2.00 –0.09 –0.30
Advanced economies –0.78 0.00 –0.02 0.00 –0.16 0.00 –0.25
Developing economies –1.33 0.00 0.00 –0.02 –1.84 –0.09 –0.05
Upstart Industrialization and Exports
Total, advanced economies 62.71 51.88 73.19 4.44 47.34 73.89 54.99
Total, developing economies 37.29 48.12 26.81 95.56 52.66 26.11 45.01
Total 100 100 100 100 100 100 100
Note: Short-run decompositions are for growth of exports between the column year and the previous five-year period. Long-run decompositions in the last
column are for the start and end years of the period. Intensive margin is for continuing exports to continuing destinations while the extensive margins are for the
combinations including new exports or new destinations. Advanced economies include United States, United Kingdom, France, Luxembourg, Italy, Germany,
Australia, Holland, Belgium, Denmark, Sweden, and Norway; remaining countries are designated as developing.
Source: See text for details.
1083
For both the new destinations and new goods margins, developing
economies account for more than four times that share in export growth
than advanced economies. For new destinations we observe growth
of 20.94 percent (18.96 from continuing products and 1.99 from new
products) versus 5.65 percent. For new goods, the values are 4.54 (2.55
from destinations already served by other goods and 1.99 to entirely new
destinations) versus 1.10. Overall growth in total exports in this period is
explained nearly evenly by the two groups of economies, although there
is substantial volatility in the five year intervals. Trade with developing
economies grew 38 times in value compared to the 12-fold increase with
advanced economies. Since exports to poorer countries were smaller in
value in both 1880 and 1910 compared to wealthier ones, the share of
overall growth explained by the former is smaller. Nonetheless, these
decompositions support our interpretation that, on the margin, new goods
enjoyed easier access in developing economies even if the new goods
margin contributes relatively little to overall export growth. This is espe-
cially remarkable given Japan’s lack of tariff autonomy for most of the
period and European dominance in Asian trade before WWI.
The size of these margins and overall results correspond closely to
the quantitative magnitudes in Evenett and Venables (2002) studying a
sample from 1970 to 1997. They find that for all trade flows in their sample
78 percent of trade growth was in continuing goods to continuing coun-
tries, the share of continuing goods to new partners made up 21 percent
of growth, new products accounted for 1.7 percent, and exit was negli-
gible. Excluding the extensive margin by new trade partnerships, the frac-
tion of overall trade explained by continuing goods is 94.6 percent in our
analysis, lower than the 98 percent found in Evenett and Venables (2002).
It should also be noted that the margins calculated for our sample are for
the universe of products and trade partners over the entire three decades.
Country-level analysis indicates different trajectories. The extensive
margin in terms of new goods mattered the most for Germany (48 percent)
and Korea (23 percent), while for China and the United States, new
goods accounted for 6.5 and 2 percent, respectively. Likewise, decompo-
sitions for the shorter five-year intervals show that the intensive margin
is responsible for 85 to 90 percent of average export growth for each
period on average. One notable exception is in 1890, when Hong Kong
and British India appear as new destinations and the intensive margin
declines substantially. Given these deviations by interval or country, the
decomposition for the three decades as a whole across all trade partners is
more representative of the evolution of Japanese exports during the first
wave of globalization.
FIRST MARKET ENTRY: DETERMINANTS OF EXTENSIVE GROWTH
Having established that extensive growth into new destinations played

an important role in explaining Japanese export patterns from 1880 and
1910, we explore more systematically the timing and determinants of
market entry. In the nineteenth century, as now, trade costs were a key
determinant of trade flows (Jacks, Meissner, and Novy 2011; Huberman,
Meissner, and Oosterlinck 2017). Trade flows and the particular products
shipped were impeded not only by high and selective tariff rates under
various treaty provisions, but also by distance that determined transporta-
tion costs and information about market opportunities.
Shipping costs at this time accounted for roughly 2 to 5 percent of the
value of the good and were generally declining due to improvements in
shipping capacity and steamship innovations. Market intelligence was
effective and depended on the networks of sales agents. The density and
reliability of these networks also varied greatly by industry and loca-
tion (Marrison, Broadberry, and Leunig 2007). In the late nineteenth
century, the diplomatic and consular network extended itself signifi-
cantly, facilitating transactions by cutting red-tape (e.g., foreign consuls
in the sending country) with consular staff reporting back to the home
country about market opportunities. Much of the cost of accumulating
up-to-date market intelligence could be considered a fixed market entry
cost since these costs varied little by the size or value of shipments.
These fixed costs might help explain why some destinations and prod-
ucts failed to receive Japanese exports. At the same time, the decision to
enter a market or to send a good depends on the capacity of the market
to generate revenue, and factors at the product, industry, and firm levels
could influence revenues given fixed costs. Finally, other costs like trade
finance, credit constraints, consumer preferences, insurance and storage
have been cited in the literature and in contemporary treatments of trade
relations.
In our sample, the mean number of destinations when a product is first
shipped is 6.4 and the median is 5. Summary statistics for each quinquen-
nial period are also shown in Table 3. The mean, median, and maximum
number of first markets entered increased over time, and the average
grew faster than the median.
To explore the dynamics of destination market entry (and exit), we
calculate a transition matrix for the number of markets served in a base
year and then in the following period using the population of products
with positive exports in a given year. In Table 4, the rows in the transition
matrix break the initial period number of destinations into 0, 1, 2, 3–5,
Table 3
SUMMARY STATISTICS FOR FIRST MARKET ENTRY, 1880–1910
Year Mean # First Markets Median Min/Max Observations
1885 3.9 4 1/8 15
1890 3.7 3 1/10 4
1895 3.8 4 1/10 3
1900 6.7 5 1/27 12
1905 8.0 6 1/28 8
1910 8.2 6 1/28 7
All years 6.4 5 1/28 49
Note: A first market is defined as a market where a product has positive exports in the first year
the product appears in the trade data.
Source: Authors’ calculations.
Table 4
TRANSITION MATRIX FOR NUMBER OF DESTINATIONS
t
0 1 2 3–5 6–10 11–21 >21
t–5
0 76.7 0 2.3 7.0 9.3 4.7 0
1 20.0 26.7 10.0 30.0 10.0 3.3 0
2 11.1 7.4 18.5 44.4 18.5 0 0
3–5 11.2 0 5.1 33.7 45.9 4.1 0
6–10 2.1 0 0.7 9.2 48.9 38.3 0.7
11–21 2.1 0 0 0.7 4.3 67.4 25.5
>21 0 0 0 0 0 1.9 98.2
Note: Row headings are for the number of destinations in year t-5 and column headings are for
those served in year t for a given product. A period is a year in these data. The matrix diagonal
gives the percentage of goods with no change in number of destinations served between t – 5 and
t, while the upper right (lower left) cells give the percentages of increased (decreased) market
penetration.
6–10, 11–21, and more than 21 destinations. Columns in this table show
the number of destinations five years later. The frequencies or shares of
goods in each entry can be interpreted as transition probabilities from the
initial state to the state in the following period.
We observe that there is some persistence in the number of markets
over time, as indicated by the large positive probabilities along the
matrix diagonal. Comparing the upper right and lower left halves of the
matrix bisected by the diagonal, the probabilities of expanding into new
markets over time are much higher than exiting existing markets. Once
a product is shipped to between six and ten destinations, the probability
of a move to the lower bins (i.e., moving to less than six destinations)
is cut by one-third to one-half. This suggests that product/industry level
“ability” to export was important or there were economies of scale in
exporting. Furthermore, we find evidence of interesting dynamics based
on sequencing: products starting in one market had a probability of more
than 50 percent of finding new markets in the subsequent period, and
for the most successful products (i.e., those with 11 or more markets)
the probability of staying in the current range or expanding was higher
than 90 percent. Especially successful products, such as those exported
to nearly all active partners, maintained at least 21 markets or more with
a probability of 98 percent.
Below the threshold of six markets, there is a non-negligible prob-
ability of dropping the number of destinations. For example, products
shipped to one market in the previous period have a 20 percent chance of
exiting. Products shipped to two destinations have an 11 percent chance
of exiting completely or a 7 percent chance of losing one market in the
next period. Once a product secured a place in more than six markets, the
probability of a decline below six markets decreases significantly. All of
this is consistent with the idea that Japanese products, in trying to break
into international markets, learned something about their export capabili-
ties on global markets that enabled them to ship to new markets and once
established rarely left.
These findings are supported by regression analysis that includes
additional covariates for trade costs at the country level and controls for
market characteristics. With regard to first market entry for an export
that becomes active in any year between 1885 and 1910, we model the
first entry decision at the country-product-year level with a pooled logit
model. A product-destination-year observation receives a one in the first
year this product is active and for each country where a product launches
for the first time.12 All other destinations which are not served for this
particular product in the first year of exporting and in all years prior to the
initial year of exports receive a zero. After entering, a product is dropped
from the sample in subsequent years. Specifically, we estimate the prob-
ability, p, that a destination country d is in the set of first destinations for
product p in year t as:
FM
π pdt = F (τ dt β0 + X dt β1 + δ t ).
12
Given our data set up the product may have been launched at any time between the current
year and four years prior. While it is possible some goods might have entered and then exited in
between sample years, the consistently low exit rates across all three decades suggest this was
not occurring.
We break down the determinants of first market (FM) entry into two
categories. The first category of determinants, t, is trade costs with a
vector of coefficients, b0. We include product invariant proxies for trade
costs such as distance, MFN treaty status, pegged exchange rate with
the destination, diplomatic representation of the destination in Japan
and that of Japan abroad, and whether the destination was the colony of
another country. Such variables, as already stated, determine the amount
of revenue generated in a destination market and some proxy for the fixed
costs of market entry.
The second category, X, with the associated vector of coefficients, b1,
could be described as destination-market or demand factors. We include
two variables related to size: the logs of the sum of pair-GDP and simi-
larity of total GDP of the destination and Japan (i.e., log of the product
of the share of GDP relative to total GDP of the dyad), respectively.
A third variable, the log of the absolute difference in GDP per capita
between Japan and its export destination, accounts for whether Japan was
more likely to enter into markets where the demand structure varied from
Japan’s. If so, we expect a positive partial effect; otherwise, a negative
coefficient would indicate that Japan traded mainly with countries at a
similar level of development. Staffan Linder (1961) hypothesized that
richer countries would specialize in high quality goods and rich country
consumers would have higher demand for such goods. Countries at similar
levels of development would then have more trade, ceteris paribus.
As discussed in Juan Carlos Hallak (2006), a negative coefficient on per
capita income differences would be consistent with the Linder hypothesis,
suggesting that Japan was increasingly exporting higher quality goods to
high income destinations as its economic growth proceeded at a rate faster
than the world average growth rate. This would also correspond to a test
of Christopher Howe’s (1996) observation that Japan followed a strategy
of exporting low quality goods to low income markets even as it embarked
onto a path of modern economic growth. Other covariates relating to
demand conditions include the number of other products shipped to this
destination in the previous period and the average growth rate of the value
of other products between the current year and five years ago to this desti-
nation. Finally, we include time and region dummy variables with the
year 1880 and Asia being the omitted categories, respectively.
As shown in Table 5, gravity model predictions hold in our regres-
sion results, with market size (i.e., partner GDP or the combination of
Japan and partner incomes) consistently associated with greater export
value and distance associated with less exporting. A doubling of market
size is associated with an increased probability of being in the set of first
Table 5
LOGIT REGRESSION RESULTS FOR FIRST MARKET ENTRY
DV: Pr(First Market Entry) (1) (2) (3) (4)
ln(GDPpartner) 0.07***
(0.01)
ln(GDPJapan + GDPpartner) 0.15*** 0.06** 0.07***
(0.02) (0.03) (0.03)
ln(GDP similarity) 0.00 –0.01 –0.01
(0.02) (0.02) (0.03)
ln(difference in GDP per capita) –0.00 0.00 0.00
(0.01) (0.01) (0.01)
ln(Distance) –0.15*** –0.13*** –0.07*** –0.12*
(0.03) (0.03) (0.03) (0.07)
MFN treaty 0.03 0.03 0.02 0.06
(0.03) (0.03) (0.04) (0.04)
Pegged exchange rate 0.03 0.03 –0.03 –0.03
(0.03) (0.03) (0.03) (0.03)
Partner diplomat in Japan –0.01 0.02 0.09 0.31***
(0.08) (0.07) (0.06) (0.02)
Japanese diplomat in destination 0.13*** 0.14*** 0.01 0.01
(0.03) (0.03) (0.04) (0.04)
Colony of another country 0.01 0.06 0.10 0.52***
(0.08) (0.09) (0.09) (0.02)
No. exported goods to destination, t – 1 0.004*** 0.004***
(0.001) (0.001)
Mean growth of other goods, t – 1 0.04*** 0.05***
(0.01) (0.01)
Time dummies Yes Yes Yes Yes

Region dummies No No No Yes
Observations 1,315 1,315 1,315 1,315
* = Significant at the 10 percent level.
** = Significant at the 5 percent level.
*** = Significant at the 1 percent level.
Dependent variable is equal to one when a country is in the set of countries in the initial year a
product appears in the data and zero if the country is not in this set. Average partial effects are
shown. Robust standard errors clustered at the destination-good level are in parentheses. Method
of estimation is logit maximum likelihood.
markets of between 7 and 15 percentage points; similarly lower prob-

abilities obtain for markets twice as distant. For the former, one inter-
pretation is that rather than trying to match preferences it appears that
Japanese products first tested themselves in the largest markets both rich
(e.g., United Kingdom) and poor (e.g., China).
Neither similarity in overall size of GDP, nor GDP per capita differences,
is a significant correlate of market entry, which may be due to a scale effect
where larger markets (regardless of individual income levels) can support
higher sales volume for a fixed entry cost. Alternatively, it could be that
the fixed costs of entry were lower in these markets. Other trade costs such
as most favored nation treaties and fixed exchange rates, are not statisti-
cally significant, which may be due to reshipment of exports to third parties
after reaching the first (and only documented) destinations like London or
Marseilles and Japan’s change from fiat currency to silver and then to gold
over this period. Variables for product-specific determinants are inconsis-
tent in predicting market entry as well: market intelligence via diplomatic
representation varies both in sign and significance depending on the speci-
fication. Colonial status is statistically significant only in the last specifica-
tion that includes both time and region dummies, but not without the latter.
More interesting are the lagged terms for export activity, which are
positive and statistically significant when included. A destination that
had received either more types or volume of Japanese exports was more
likely to see additional entry of new products, suggesting that market
presence is both persistent and augmenting for new product launches.
Although the magnitudes are small, given the average number of prod-
ucts received by a given destination and the sheer volume of export
growth over this period, neither is negligible. These forces are important
even after controlling for period fixed effects, which we do throughout,
the overall size of the market, and the geographic region.
GENERAL MARKET ENTRY ANALYSIS OF EXTENSIVE GROWTH
To extend this analysis to subsequent market entry beyond first

markets, we again use a pooled logit model to explain further entry at the
product-destination-year level. We assign a one to each country-product-
year observation if the product has already previously entered into at
least one market in the world in the previous period and then entered a
particular destination in a given year. The destination-product pair obser-
vation drops from our sample after the year of entry. Furthermore, once a
product is active in at least one destination country, each country-product
observation where no positive sales have been previously recorded
becomes “at risk.” We assign these observations a zero. We estimate the
probability of entry, π SM
pdt , for product p, in destination country d, in year
t, using a pooled logit model as follows:
π SM
pdt
= F (τ dt β0 + X dt β1 + X pt β 2 + δ t ).
For the market entry decision, we include a vector of trade cost controls,
tdt, a vector of destination controls, Xdt, and a third category of deter-
minants, Xpt, that are time-varying and product specific. We include the
change in the logarithm of a product’s sales to all other markets between
the current year and five years earlier. If a product is growing strongly
in general then it might be expected to have success in the next market.
We also include dummy variables for the number of destinations for the
product in the previous period, grouped using the same bins as in the
transition matrix of Table 4 (i.e., 2, 3–5, 6–10, 11–21, and more than 21
markets). Finally, we include a full set of region and year fixed effects.
Table 6 reports our results. Similar to our first entry results, size (e.g.,
sum of Japan-trade partner GDPs) and distance both matter, although
the former has less predictive power and the latter more. The elasticity
of the probability of entry with respect to size is one-third to one-half
the magnitude of the elasticity with respect to a decline in distance. The
average partial effect in column 1 of Table 6 for size is 0.03 while for
a 1 percent drop in bilateral distance it is 0.15. The partial effects of
differences in income per capita, unlike the earlier results on first entry,
are now consistently positive and statistically significant. These results
suggest that once a product had been “tested” in a large international
market, it was more likely to expand entry into countries that are dissim-
ilar from Japan in terms of GDP per capita. As Japan was by international
standards a poor, but fast-growing economy throughout this period, it
seemed able to gain new markets for particular products in countries that
were growing relatively more slowly—ostensibly where demand may
have been more favorable.
Trade costs like MFN treaty status and pegged exchange rates also
become positive and significant, with the magnitude of the partial effect
of an MFN exceeding that of a pegged exchange rate by an order of
magnitude. MFN treaties are associated with a rise in the probability
of entry of about 12 percentage points compared to about 2 percentage
points for a fixed exchange rate. It is surprising to see that if a destination
is the colony of another country a product is more likely to enter. This
average partial effect may be due to collinearity with the region fixed
effects and diplomatic representation as large nations with empires were
more likely to have diplomatic representation in Japan.
As from the earlier results in Table 5, product specific factors are clearly
consistent correlates across all columns. Existing market presence and
growth in the previous five years to other markets are positive and signifi-
cant. For example, a doubling in the growth of sales is associated with a
roughly 2 percentage point increase in the likelihood of entry. The mean
Table 6
LOGIT REGRESSION RESULTS FOR ALL MARKET ENTRY
DV: Pr(Market Entry) (1) (2) (3) (4) (5)
ln(GDPJapan + GDPpartner) 0.03*** 0.11*** 0.09*** 0.07*** 0.09***
(0.01) (0.01) (0.01) (0.01) (0.01)
ln(GDP similarity) 0.02*** 0.04*** 0.03*** 0.03*** 0.03***
(0.01) (0.01) (0.01) (0.01) (0.01)
ln(difference in GDP per capita) 0.02*** 0.02*** 0.02*** 0.02***
(0.00) (0.00) (0.00) (0.00)
ln(Distance) –0.15*** –0.22*** –0.22*** –0.24*** -0.21***
(0.03) (0.02) (0.02) (0.02) (0.02)
MFN treaty 0.12*** 0.12*** 0.12*** 0.13*** 0.12***
(0.01) (0.01) (0.01) (0.01) (0.01)
Pegged exchange rate 0.02* 0.01 0.02** 0.02* 0.01
(0.01) (0.01) (0.01) (0.01) (0.01)
Partner diplomat in Japan 0.14*** 0.11*** 0.11*** 0.11*** 0.11***
(0.02) (0.03) (0.03) (0.03) (0.03)
Japanese diplomat in destination –0.01 0.01 0.02 –0.00 0.02**
(0.01) (0.01) (0.01) (0.01) (0.01)
Colony of another country 0.13*** 0.13*** 0.13*** 0.14*** 0.14***
(0.03) (0.03) (0.03) (0.03) (0.03)
Change ln(exports to all markets, t – 1) 0.02*** 0.02*** 0.02*** 0.02*** 0.02***
(0.00) (0.00) (0.00) (0.00) (0.00)
Number of. exported goods to 0.002*** 0.02***
destination, t – 1 (0.000) (0.00)
ln(Distance to closest market, t – 1) –0.04***
(0.00)
Mean growth of other goods, t – 1 0.02*** 0.02*** 0.02***
(0.00) (0.00) (0.00)
New good dummy 0.01 0.01
(0.01) (0.01)
Advanced economy dummy 0.08***
(0.01)
Interaction of new good•advanced –0.04***
economy dummies (0.01)
ln(GDPpartner per capita) 0.06***
(0.01)
Interaction of –0.03***
new good•ln(GDPpartner per capita) (0.00)
Observations 9,239 9,239 9,239 9,239 9,239

Dependent variable equals one when a product is already exported to at least one country in the sample and is first
exported to the given country and zero if the product has not yet experienced positive exports. The sample excludes
the first destination countries when a product first appears in the data set. Average partial effects are shown. Robust
standard errors clustered at the destination-good level are in parentheses. Method of estimation is logit maximum
likelihood. Dummy variables for time, region, and lagged number of markets are included but not reported.
rise in sales in our sample is 0.59 log points with a median of 0.52, a 75th
percentile of 1.18 and a 95th percentile of 2.8. The full sample likelihood
of entry is 0.08 (i.e., 8 percent). The lagged number of markets served in
the previous period by a product is positive as well. The average partial
effect, which is not shown in the table to conserve on space, is larger in
magnitude as the number of markets increases. For example, in the first
column’s specification, products serving two markets have a 0.02 (i.e., a
2 percentage point) higher likelihood of entry than for one market. For
products serving 11 to 21 markets or more than 21 markets, the increase
is very sizeable in economic terms, raising the probability by 17 and 38
percentage points, respectively.
Highlighting the possibility that product entry is more likely in markets
that are geographically proximate to other extant markets with active
exports, we include a variable for lagged distance to Japan’s nearest
active market for a given good in column 2. We also use another metric
of similarity, namely proximity in product space. We create a variable
equal to the lagged value-weighted average of the SITC codes of active
exports to a market. We then take the log of the absolute value of the
difference between the SITC code for a product not yet entered and this
weighted average.13 The goal here is to test for demand complementarities
in the sense that products related in the product space are more likely to
enter when similar exports are already being exported to a given market.
For both these variables, we find that proximity has a small, but statisti-
cally significant association with entry with the expected signs: distance
to the closest active market is negatively related to entry while growth
in related goods is positively related. The last two columns include an
indicator variable for a new good, and the probability of entry for a new
good is lower whether interacted with the advanced economy dummy
or trade partner per capita income. This evidence is consistent with the
observation in Howe (1996) that Japan was increasingly competitive
in poorer markets by tailoring its products to suit their preferences and
reducing trade costs, even as the country continued to expand trade with
its existing and wealthier partners.
To test whether quality differences influenced Japanese export expan-
sion, we use product unit values by destination market. The rationale
13
Recall that the SITC categorization has ten broad product classifications ranging from zero
to nine as listed in the legend to Figure 1. Finer classifications within a broad product range are
created with additional integers in the tens, hundreds, thousands units, etc., “behind” the leading
integer. The products in our sample carry a maximum of three-digits. For instance, category six is
“manufactured goods classified by material,” category 611–613 comprises various manufactured
leather and fur-skin goods, 621–628 comprises various manufactured goods made with rubber,
and 633–635 is for products made of cork and wood, etc.
is based on the Linder hypothesis that richer (poorer) countries demand

higher (lower) quality for the same good, which we approximate with
price. Table 7 presents results from linear regressions of the following
form:
ln(Unit Value pdt ) = β1 ln(GDP per capita dt )
+ β 2 ln(distance d ) + u pt + ε pdt ,
where the dependent variable is the log of the unit value. Our indepen-
dent variables include either an advanced economy indicator or the log
of GDP per capita of the destination market; the log of shipping route
distance from Japan or country dummy variables; a set of product-year
indicators upt; and an error term epdt. Product-year indicators control for
level differences in unit values across products as well as product-specific
supply shocks or global demand shocks to the particular Japanese good.
Estimates in the first five columns, which use either the advanced
economy dummy or partner GDP per capita, show that wealthier destina-
tions are positively associated with the unit values. In column 2, when we
control for one major determinant of trade costs, distance, the coefficient
on the advanced indicator falls from 0.13 to 0.06, suggesting that part of the
reason richer countries have higher unit values is that they are more distant
in our sample. The distance coefficient is positive in this specification,
which is a standard result when some fraction of trade costs is “specific,”
implying economies of scale in shipping (compare Table 6 in Bernard,
Jensen, and Redding 2007). Richer countries may import higher unit value
goods from Japan, but this is largely because of the nature of trade costs.
When we control for many unobservable trade costs and destination
specific demand factors with country fixed effects, GDP per capita is
no longer significant (column 5). In columns 6 through 8 we control for
changing composition of goods by running these regressions only for the
panel of goods which are shipped in all seven quinquennial periods and
have at least one advanced and one developing destination. Results from
this balanced sample are qualitatively the same as those in the preceding
columns. In other words, since higher priced goods are not associated
with wealthier partners after country fixed effects are included, we cannot
rule out that trade costs play a more important role in explaining destina-
tion prices rather than quality.14
14
We ran gravity regressions in our full sample that interacted the unit value of a good with
the GDP per capita of the destination similar to those in Hallak (2006). We included country-
year fixed effects and the logarithm of distance as additional controls. In a pooled sample, the
interaction term of unit values and GDP per capita is not statistically significant.
Table 7
LINEAR REGRESSION RESULTS FOR EXPORT UNIT VALUE, 1880–1910
Balanced Sample
DV: ln(Unit value) (1) (2) (3) (4) (5) (6) (7) (8)
Advanced economy dummy 0.13*** 0.06* 0.23*** 0.17*
(0.03) (0.03) (0.04) (0.08)
ln(GDPpartner per capita) 0.08*** 0.05** 0.09 –0.29

(0.02) (0.02) (0.20) (0.42)
ln(Distance) 0.06** 0.07** 0.05

(0.02) (0.03) (0.06)
Country dummies No No No No Yes No No Yes

Product-year dummies Yes Yes Yes Yes Yes Yes Yes Yes
R-squared 0.94 0.94 0.94 0.94 0.94 0.96 0.96 0.97
Observations 9,544 9,544 5,896 5,896 5,896 248 248 248
Upstart Industrialization and Exports

Robust standard errors clustered at the destination-good level are in parentheses. Method of estimation is OLS. Product unit values are calculated using total
exports for each exported product by country and total quantity. Advanced economies include United States, United Kingdom, France, Luxembourg, Italy,
Germany, Australia, Holland, Belgium, Denmark, Sweden, and Norway; remaining countries are designated as developing. The balanced sample in columns 6
to 8 comprises products continuously exported throughout the period and exported to at least one advanced and one developing economy.
1095
Using unit values as a proxy for quality may be problematic when

investigating product quality, so we examine Indian imports of four broad
product categories from seven exporting countries: Belgium, China,
France, Great Britain, Hong Kong, Italy, and Japan. The products are
“cotton twist and yarn,” “cotton piece goods white (bleached),” “cotton
piece goods, colored, printed, or dyed,” and “silk piece goods” and were
imported between 1891 and 1907. Results from our linear regression (not
shown) with quantity as the dependent variable and the covariates of unit
price, a time trend, and country and product fixed effects indicate that
increased Japanese market share was not associated with price differ-
ences. Separate specifications using year indicators and their interaction
with Japan’s country indicator show similar results. We interpret these
findings as consistent with increased Japanese exports due to a decline
in trade costs, especially the types of fixed trade costs that depend on
product volume or weight.
MARKET EXIT: ANALYSIS OF EXTENSIVE GROWTH
Finally, we analyze market exit for Japanese exports, which we have

shown earlier played a smaller role during our period. In our sample there
are 269 cases of “permanent exit” compared to 1,703 entrances and 394
first market observations.15 Permanent exit is defined for a good when
exports of a product-country pair in the previous period were non-zero
but are zero in the current year and every following year for that product-
country pair. We restrict attention to the period 1880 to 1905 since we
did not collect data post-1910. There are 393 more observations where a
product temporarily ceases to be sold in a market. We restrict attention
to the cases of permanent exit from a market since temporary exits may
reflect transitory factors, which are of less interest in explaining the long-
run transformation of Japanese exports.
We use the logit regression model specifications from Table 6 to explore
the determinants of exit; the dependent variable is one in the year when a
product-country pair experiences a permanent exit. As before, we control
for trade costs, market demand, and product specific factors. Since there
are so few exits, many indicators cannot be precisely estimated or need to
be dropped completely. This is the case for the region dummies and the
indicators for exports to two markets or greater than 21 markets. Since a
product has a zero value in the year it exits, we cannot include growth of
exports of this product between the current year and the previous period.
15
There are 6,699 non-zero export observations in our data set.
Table 8
LOGIT REGRESSION RESULTS FOR MARKET EXIT
DV: Pr(Market exit) (1) (2) (3) (4)
ln(GDPJapan + GDPpartner) –0.10 –0.06 0.23 –0.21
(0.08) (0.07) (0.13) (0.09)
ln(GDP similarity) –0.18 –0.08 –0.13 0.22
(0.22) (0.21) (0.22) (0.28)
ln(difference in GDP per capita) 0.01 0.02 0.01 0.02
(0.03) (0.03) (0.03) (0.04)
ln(Distance) 0.46** 0.33** 0.33** 0.33**
(0.18) (0.16) (0.16) (0.64)
MFN treaty –1.25** –0.96** –1.07*** –1.27**
(0.51) (0.43) (0.41) (0.98)
Pegged exchange rate –0.47*** –0.33** –0.25 –0.23**
(0.16) (0.16) (0.17) (0.21)
Partner diplomat in Japan 1.39*** 1.11*** 0.68* 1.26
(0.42) (0.33) (0.35) (0.48)
Japanese diplomat in destination –1.15** –0.97** –0.59 –0.42
(0.54) (0.40) (0.41) (0.80)
Colony of another country 1.50*** 1.14*** 0.93*** 0.98**
(0.39) (0.32) (0.36) (0.48)
Change ln(exports to all markets, t – 1) –0.08*** –0.09*** –0.09*** –0.09***
(0.03) (0.03) (0.03) (0.02)
Value of exports to destination, t – 1 –0.04*** –0.04*** –0.04***
(0.01) (0.01) (0.01)
No. exported goods to destination, t – 1 –0.01**
(0.00)
Mean growth of other goods, t – 1 0.00
(0.05)
Observations 174 174 174 174

Average partial effects are shown. Robust standard errors clustered at the destination-good level
are in parentheses. Method of estimation is logit maximum likelihood. Dummy variables for time,
region, and lagged number of markets are included but not reported.
Instead we include the level of exports in the previous period to a market

by a product.
Our results, shown in Table 8, indicate that rising distance is associ-
ated with a higher likelihood of exit, which is consistent with our obser-
vation that European trade shares declined over time in favor of Japan’s
Asian neighbors. The only other trade cost proxies that are statistically
significant are MFN treaty status,the fixed exchange rate indicator and
the colony indicator. Both the average partial effects of MFN treaty status
and fixed exchange rates are negative and statistically significant, which
we interpret as offsetting the distance effect. Colonies were difficult to
maintain according to our results here.
Market-specific factors are not consistently statistically significant.
While market size and similarity in size played strong roles in explaining
first entry and subsequent entry into other markets, they play no signifi-
cant role for exit. This corresponds with the view that fixed costs matter.
In large markets, entry depends on covering fixed costs but for exit a
similar logic does not apply since it is free. We find that exit is less likely
when the number of goods sold in a market rises. Moving from selling
ten to 50 goods to a market would decrease the probability of exit by
nearly 40 percentage points. At the same time, average growth of all
other products is not a significant determinant.
Product specific factors are also important. We find that when the
growth of exports to the rest of the world of this product is high, a product
is less likely to exit a market. Large levels of exports to a country in the
previous period are also associated with lower exit probabilities, while the
number of markets in which the product has sales does not seem to matter.
None of the indicators for number of markets is individually statistically
significant. Although expanding the number of markets seems to be a key
determinant of entry, exit does not depend on the number of markets as
much as strong growth of sales along the intensive margin. Once again,
this is compatible with the notion that fixed costs are important for entry.
Moreover, expansion of the intensive margin seems to depend on the past
insofar as past success correlates with product-level unobservables.
CONCLUSIONS
Between its dramatic liberalization in the 1850s and the first decades of
the twentieth century, Japan traversed a path of unprecedented economic
convergence to leading industrial economies in the West. Its integration
with world markets provided it not only with significant gains from trade
(Bernhofen and Brown 2005), but also promoted institutional, structural,
and technological change (Basco and Tang 2017; Braguinsky, Ohyama,
Okazaki, and Syverson 2015; Morck and Nakamura 2007; Nicholas
2011; Perkins and Tang 2017; Tang 2016; Tang 2017). How did trade
interact with domestic production, and are there discernable patterns to
Japanese export success?
In this article, we decomposed Japanese export growth by margin type
and found that extensive growth in markets and goods accounted for
nearly one-third of total export growth. Rather than merely persisting in

exporting the same goods as it did in 1870 or 1880, Japan diversified its
portfolio of exports and moved up the value added chain. In particular,
Japan progressively moved from being an exporter of raw materials in
which it had a comparative advantage to an exporter of cotton thread,
cotton textiles, and other more elaborate manufactured goods.
Japan also initially exported its traditional goods to rich countries and
a handful of near neighbors. Between 1880 and 1910 its focus shifted
strongly to less developed economies in the Asian region and away
from the so-called advanced economies, and this margin of extensive
growth contributed much more to growth than the export of new goods.
While Japan’s comparative advantage may have changed over time, our
results show that trade costs and market demand patterns also mattered.
These changes in destinations and exported products tell us much about
the Japanese economic experience of the late nineteenth century and is
comparable to what modern day emerging economies have achieved in the
second wave of globalization. At the same time, intensive growth remained
important, and this margin for Japan is roughly similar to Belgium’s, the
only other country for which comparable data have been digitized and
analyzed in this period (Huberman, Meissner, and Oosterlinck 2017).
Based on the importance of extensive market growth, we further
explored whether trade costs, market specific forces, and product specific
factors mattered for entry and exit of Japanese products and derived some
stylized facts. First, gravity holds: market entry depended largely on
market size and proximity. Better information about markets and market
size also appear to mitigate the fixed costs of exporting and these large
markets were good places to test the potential of expansion into other
markets. Once established, exports increased intensively and extensively,
with tried products fanning out into other markets. As Japan’s economy
converged toward the leaders, it became more likely to enter and to stay
active in relatively poor markets. The growth of exports in new products
appears to have been the outcome of declining trade costs more than
matching quality to the destination. In other words, our evidence does not
conform with the idea that export growth in Japan focused on providing
low-cost, low quality goods in low-income countries. Moreover, the bulk
of export growth remained in the intensive margin, which meant that
even as Japan expanded into new markets and with new goods, it kept
exporting products that it had produced since the beginning of the period.
This suggests the country was able to increase its range of partners
and goods even as it remained competitive in existing markets without
discarding products that powered its industrialization drive.
All of these results are established using a new disaggregated trade

dataset of which we are the first to analyze. While they echo patterns
seen in other countries in the period and in modern times, there are some
differences. First, Japan lacked tariff autonomy and thus was constrained
in terms of trade policy. This contrasts with the experiences of coun-
tries in recent decades, those of the leading countries of the nineteenth
century, and Latin America where trade policies were usually autono-
mous decisions that reflected local social and political preferences. Japan
was also geographically isolated in the period compared to the average
European economy and had a relatively small domestic market compared
to the United States. That said, Japan had some early advantages due to
its factor endowments and relative proximity to the two large and poor
markets of China and India. Our analysis suggests that compared to
western producers Japan was able to more easily capitalize on the size of
these neighbors to learn how to export higher value-added goods. Further
historical work using similar data sets in other countries is on the cusp of
being developed and studied. Such research will allow us to make finer
and more careful comparisons between Japan and the rest of the world
as well as improve our understanding of how both developed and devel-
oping markets integrated over time.
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Upstart Industrialization and Exports:

Evidence from Japan, 1880–1910

Between 1880 and 1910, Japanese exports increased in volume, changed

and that establishing new trade partnerships increased the probability of

EARLY JAPANESE INDUSTRIALIZATION AND EXPORTS, 1880–1910

The Japanese economy began to industrialize in the second half of

Foremost among the modernizing industries was textiles, which was

and markets.3 Formal annexation of Korea in 1910 only furthered Japan’s

DATA: DISAGGREGATED EXPORTS FOR JAPAN, 1880–1910

We also hand-collected Japanese diplomatic representation abroad and

DECOMPOSITION: DIVERSIFICATION OF JAPANESE EXPORTS

Goods n.e.c. Animal and veg. oils, fats

Chemicals and related Food and Live Animals

40 percent by 1910, with Chinese dominance within Asia fading.7 Trade

0.2 between 1880 and 1910.8 Combining both dimensions of commodity

Food & Live Animals Beverages & Tobacco Crude Materials

Food & Live Animals Beverages & Tobacco Crude Materials

Share in Japan's Exports by SITC 1 90%

Food & Live Animals Beverages & Tobacco Crude Materials

X dt − X dt −1  ∑ k ∈CN dt−1,t ( xdt −1 )   ∑ k ∈CN dt−1,t ( xdt − xdt −1 ) 

In this decomposition Xdt is the total value of exports from Japan to a

FIRST MARKET ENTRY: DETERMINANTS OF EXTENSIVE GROWTH

Having established that extensive growth into new destinations played

Time dummies Yes Yes Yes Yes

markets of between 7 and 15 percentage points; similarly lower prob-

GENERAL MARKET ENTRY ANALYSIS OF EXTENSIVE GROWTH

To extend this analysis to subsequent market entry beyond first

Observations 9,239 9,239 9,239 9,239 9,239

is based on the Linder hypothesis that richer (poorer) countries demand

ln(GDPpartner per capita) 0.08*** 0.05** 0.09 –0.29

ln(Distance) 0.06** 0.07** 0.05

Country dummies No No No No Yes No No Yes

*** = Significant at the 1 percent level.

Using unit values as a proxy for quality may be problematic when

MARKET EXIT: ANALYSIS OF EXTENSIVE GROWTH

Finally, we analyze market exit for Japanese exports, which we have

Observations 174 174 174 174

Instead we include the level of exports in the previous period to a market

nearly one-third of total export growth. Rather than merely persisting in

All of these results are established using a new disaggregated trade

Almanach de Gotha. Annuaire généalogique, diplomatique et statistique. Gotha:

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ln(GDPpartner per capita) 0.08* 0.05 0.09 –0.29

ln(Distance) 0.06 0.07 0.05