The current thesis attempts to explain the institutional buildup of the treaty-port system in China from the trade perspective: first, evidence of the tradition of "colony for trade" in Hong Kong is present in detail in historical literature and data; second, a mathematical model is constructed to capture the trade mechanism working in the history of the treaty-port system covering Hong Kong, Shanghai [the representative of Concessions and Settlements (C&S)], and Macao in sequence.;Why was Hong Kong colonized? Is it true that Hong Kong was colonized for its rich natural resources (e.g., African colonies) or its desirable dwelling environment (e.g., Neo-Europes) as Acemoglu et al. (2001) argued for its colonial origins? Hong Kong's experience based on historical empirical evidence, shows that there definitely exists a new colonial and institutional origin: trade, traced back to Adam Smith (1776) and Ragnar Nurkse (1961), where the triangular trade among China, India, and Britain left Hong Kong as the transit trade position to get started on its journey to getting rich. Acemoglu et al. (2002) emphasized that the "institutional reversal" due to colonialism was the key to its subsequent economic growth. Was it right for Hong Kong? Hong Kong was not colonized for settling down; thus, there was little incentive to build up good institutions to sustain its economy according to the argument of Acemoglu et al. (2001). However, Hong Kong built the good institutions to rise up like Neo-Europes, whereas Acemoglu et al. (2005) showed that the rise of Europe was motivated by the triumph of the institutions derived from the Atlantic trade. This implies that trade could be an indispensable channel through which the economy would flourish. The current paper extends the trade mechanism in the motherland before 1850 according to Acemoglu et al. (2005) to the colony after 1840; thus, this is where Hong Kong's trade story begins. Endowed with the trade framework originating from the colonialism of Hong Kong, the whole evolution of the treaty-port system, including Hong Kong, C&S (represented by Shanghai), and Macao in China, from 1840 to 1941 could be fully understood. Consequently the current paper attempts to construct an analytical model to highlight the trade mechanism in the colonization of Hong Kong and its extension or competing institution form---C&S in the treaty-port system further.
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