What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure
of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs
in determining international trade flows. We construct a new balanced sample of bilateral trade flows
for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to
2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom.
In contrast, for the post-World War II trade boom we identify changes in output as the dominant force.
Finally, the entirety of the interwar trade bust is explained by increases in trade costs
