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On the Origins of Border Effects: Insights from the Habsburg Customs Union

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  • Schulze, Max Stephan
  • Wolf, Nikolaus

Abstract

This paper examines the emergence and dynamics of border effects over time. We exploit the unique historical setting of the multinational Habsburg Empire prior to the Great War to explore the hypothesis that border effects emerged as a result of persistent trade effects of ethno-linguistic networks within an overall integrating economy. While markets tended to integrate, the process was strongly asymmetric and shaped by a simultaneous rise in national consciousness and organisation among Austria-Hungary’s different ‘nationalities’. We find that the political borders which separated the empire’s successor states after the First World War became visible in the price dynamics of grain markets already 25-30 years before the First World War. This effect of a ‘border before a border’ cannot be explained by factors such as physical geography, changes in infrastructure or patterns of asymmetric integration with neighbouring regions outside of the Habsburg customs and monetary union. However, controlling for the changing ethno-linguistic composition of the population across the regional capital cities of the empire does explain most of the estimated border effects.

Suggested Citation

  • Schulze, Max Stephan & Wolf, Nikolaus, 2007. "On the Origins of Border Effects: Insights from the Habsburg Customs Union," CEPR Discussion Papers 6327, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6327
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    Cited by:

    1. 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.
    2. Pauline Grosjean & Claudia Senik, 2011. "Democracy, Market Liberalization, and Political Preferences," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 365-381, February.
    3. 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.
    4. Rosés, Joan R. & Wolf, Nikolaus, 2008. "Prosperity and depression in the European economy and during interwar years (1913-1950) : an introduction," IFCS - Working Papers in Economic History.WH wp08-10, Universidad Carlos III de Madrid. Instituto Figuerola.

    More about this item

    Keywords

    border effects; Habsburg Empire; market integration; networks; pre-1914 Europe;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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    1. Historical Economic Geography

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