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Tear Down this Wall: On the Persistence of Borders in Trade

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  • Volker Nitsch
  • Nikolaus Wolf

Abstract

Why do borders still matter for economic activity? The reunification of Germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade both in the cross-section and over time. With the fall of the Berlin Wall and the rapid formation of a political and economic union, strong and strictly enforced administrative barriers to trade between East Germany and West Germany were eliminated completely within a very short period of time. The evolution of intra-German trade flows after reunification then provides new insights for both the globalization and border effects literatures. Our estimation results show a remarkable persistence in intra-German trade patterns along the former East-West border; political integration is not rapidly followed by economic integration. Instead, we estimate that it takes at least one generation (between 33 and 40 years or more) to remove the impact of political borders on trade. This finding strongly suggests that border effects are neither statistical artefacts nor mainly driven by administrative or "red tape" barriers to trade, but arise from economic fundamentals.

Suggested Citation

  • Volker Nitsch & Nikolaus Wolf, 2009. "Tear Down this Wall: On the Persistence of Borders in Trade," CESifo Working Paper Series 2847, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2847
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    References listed on IDEAS

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    Cited by:

    1. Heinemeyer, Hans Christian & Schulze, Max Stephan & Wolf, Nikolaus, 2008. "Endogenous Borders? Exploring a Natural Experiment on Border Effects," CEPR Discussion Papers 6909, C.E.P.R. Discussion Papers.
    2. Wolf, Nikolaus, 2009. "Was Germany Ever United? Evidence from Intra- and International Trade, 1885–1933," The Journal of Economic History, Cambridge University Press, vol. 69(03), pages 846-881, September.
    3. Peter H. Egger & Marko Köthenbürger & Gabriel Loumeau, 2017. "Local Border Reforms and Economic Activity," CESifo Working Paper Series 6738, CESifo Group Munich.
    4. Delina E. Agnosteva & James E. Anderson & Yoto V. Yotov, 2014. "Intra-national Trade Costs: Measurement and Aggregation," NBER Working Papers 19872, National Bureau of Economic Research, Inc.
    5. Jerónimo Carballo & Georg Schaur & Alejandro Graziano & Christian Volpe Martincus, 2016. "Transit Trade," IDB Publications (Working Papers) 7688, Inter-American Development Bank.
    6. Gabriel Felbermayr & Jasmin Gröschl, 2014. "Within U.S. Trade And The Long Shadow Of The American Secession," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 382-404, January.
    7. Alfred Lameli & Volker Nitsch & Jens Südekum & Nikolaus Wolf, 2015. "Same Same But Different: Dialects and Trade," German Economic Review, Verein für Socialpolitik, vol. 16(3), pages 290-306, August.
    8. Körner, Finn Marten & Trautwein, Hans-Michael, 2015. "Sovereign credit ratings and the transnationalization of finance: Evidence from a gravity model of portfolio investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-54.
    9. Raphael Schoettler & Nikolaus Wolf, 2016. "Blooming Landscapes in the West? - German reunification and the price of land," SFB 649 Discussion Papers SFB649DP2016-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    10. Hinz, Julian, 2017. "The view from space: Theory-based time-varying distances in the gravity model," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168270, Verein für Socialpolitik / German Economic Association.
    11. Jerónimo Carballo & Georg Schaur & Alejandro Graziano & Christian Volpe Martincus, 2016. "Transit Trade," IDB Publications (Working Papers) 94658, Inter-American Development Bank.
    12. Carlos Llano‐Verduras & Asier Minondo & Francisco Requena‐Silvente, 2011. "Is the Border Effect an Artefact of Geographical Aggregation?," The World Economy, Wiley Blackwell, pages 1771-1787.
    13. Wrona, Jens, 2015. "Border effects without borders: What divides Japan's internal trade?," DICE Discussion Papers 185, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    14. Christian Volpe Martincus, 2016. "Out of the Border Labyrinth: An Assessment of Trade Facilitation Initiatives in Latin America and the Caribbean," IDB Publications (Books), Inter-American Development Bank, number 96856, February.
    15. Wrona, Jens, 2015. "Border Effects without Borders," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113060, Verein für Socialpolitik / German Economic Association.
    16. repec:idb:idbbks:7994 is not listed on IDEAS
    17. Anderson,James E. & Borchert,Ingo & Mattoo,Aaditya & Yotov,Yoto Valentinov, 2015. "Dark costs, missing data : shedding some light on services trade," Policy Research Working Paper Series 7465, The World Bank.
    18. Volker Nitsch & Nikolaus Wolf, 2010. "Zur Dauerhaftigkeit von Handelsbarrieren : Evidenz von der deutsch-deutschen Wiedervereinigung," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(05), pages 28-30, October.
    19. repec:ces:ifodre:v:17:y:2010:i:05:p:s.28-30 is not listed on IDEAS
    20. Marcel Henkel & Tobias Seidel, 2016. "A Spatial Perspective on European Integration: Heterogeneous Welfare and Migration Effects from the Single Market and the Brexit," CESifo Working Paper Series 6289, CESifo Group Munich.
    21. 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 Group Munich.

    More about this item

    Keywords

    integration; home bias; globalization;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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