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The treatment effect of borders on trade. The great war and the disintegration of Central Europe

Author

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  • Hans Christian Heinemeyer

    (Department of Economics, Freie Universität Berlin, Boltzmannstrasse 20, 14195 Berlin, Germany)

Abstract

This paper investigates the impact of changes in national border demarcation on economic integration. It treats the national breakups in Central Europe due to WWI as a natural experiment. The set-up allows to control for selection bias when estimating the impact of national borders on trade. A gravity model of trade is used to analyze goods-specific trade among Central European regions. The main results are, first, that systematic deviations of the observations under “border treatment” are found. Regions pairs that became separated by a new national border after WWI, tended to have below average levels of economic integration already before the war. A comparison of actual and biased result for goods-specific trade yields a difference of between 21 and 86% ad-valorem tariff equivalent, and might well be higher for certain goods. Second, the analysis indicates that cross-border integration was indeed lower after WWI but that this change was economically significant only for certain sectors. Third, in the interwar period, international trade was less diverted by borders first established after the war than by borders existing already before WWI. The results stress the importance of relative barriers to trade in attenuating the adverse effects of WWI on economic integration.

Suggested Citation

  • Hans Christian Heinemeyer, 2007. "The treatment effect of borders on trade. The great war and the disintegration of Central Europe," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 1(3), pages 177-210, October.
    • Handle: RePEc:afc:cliome:v:1:y:2007:i:3:p:177-210
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    Citations

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    Cited by:

    1. Volker Nitsch & Nikolaus Wolf, 2013. "Tear down this wall: on the persistence of borders in trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 154-179, February.
    2. Wolf, Nikolaus & Schulze, Max-Stephan & Heinemeyer, Hans Christian, 2008. "Endogenous Borders? Exploring a Natural Experiment on Border Effects," CEPR Discussion Papers 6909, C.E.P.R. Discussion Papers.
    3. Male, Rachel, 2010. "Business Cycle Persistence in Developing Countries: Can a DSGE Model with a Vertical Production Chain and Sticky Prices Reproduce the Stylised Facts?," Conference papers 332023, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Hans-Christian Heinemeyer & Max-Stephan Schulze & Nikolaus Wolf, 2008. "Endogenous Borders? The Effects of New Borders on Trade in Central Europe 1885-1933," CESifo Working Paper Series 2246, CESifo.

    More about this item

    Keywords

    Border effects; Treatment effect; First World War; Central Europe;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-

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