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The period 1870-1913 marked the birth of the first era of trade globalization. What was the effect of this gigantic increase in trade on economic development? This work isolates a causality channel by exploiting the fact that the steamboat produced an asymmetric change in trade distances across countries. Before its invention trade routes used to depend on wind patterns. The invention of the steamboat not only reduced trade costs but it did it in a disproportional way across countries and trade routes. Using this source of variation and novel cross-country data, I find that 1) the adoption of the steamboat was the major responsible of the first wave of trade globalization 2) the effect of trade on both urbanization rates and per-capita GDP was, on average, negative.
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