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Tariffs, Trains, and Trade: The Role of Institutions versus Technology in the Expansion of Markets

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  • Keller, Wolfgang
  • Shiue, Carol Hua

Abstract

We study the relative importance of technology and institutions as factors determining the size of markets. The setting of 19th century Europe presents a unique opportunity to address this issue, since it witnessed fundamental change in both dimensions. First, Germany went from around 1,800 customs borders to none through the Zollverein customs treaties. Second, it moved from a situation of monetary disorder to currency unification. And third, the 19th century saw the introduction of steam trains, the key technology that revolutionized transportation between markets. Changes in market integration are studied in terms of the spatial dispersion of grain prices in 68 markets with more than 10,000 observations, located in five different countries and fifteen different German states. We find that the emergence of integrated commodity markets in 19th century Europe is in major part due to the transportation revolution in form of the railways. There is evidence that also customs liberalizations and, more so, currency agreements improved trade possibilities. However, the impact of trains was larger than the effect of these institutions: about three times larger over the long horizon, and around 50% larger for the relatively short time horizon of twenty-five years. These results suggest that as significant as institutional factors were for the expansion of markets, technology factors may have been even more important.

Suggested Citation

  • Keller, Wolfgang & Shiue, Carol Hua, 2008. "Tariffs, Trains, and Trade: The Role of Institutions versus Technology in the Expansion of Markets," CEPR Discussion Papers 6759, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6759
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mario J. Crucini & Gregor W. Smith, 2016. "Distance and Time Effects in Swedish Commodity Prices, 1732-1914," Working Papers 1357, Queen's University, Department of Economics.
    2. Réka Juhász, 2014. "Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade," CEP Discussion Papers dp1322, Centre for Economic Performance, LSE.
    3. 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.
    4. Mario J. Crucini & Gregor W. Smith, 2014. "Geographic Barriers to Commodity Price Integration: Evidence from US Cities and Swedish Towns, 1732 - 1860," CAMA Working Papers 2014-75, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Sebnem Kalemli-Ozcan & Alex Nikolsko-Rzhevskyy, 2010. "Does Trade Cause Capital to Flow? Evidence from Historical Rainfalls," NBER Working Papers 16034, National Bureau of Economic Research, Inc.
    6. Juhász, Réka, 2014. "Temporary protection and technology adoption: evidence from the Napoleonic blockade," LSE Research Online Documents on Economics 60697, London School of Economics and Political Science, LSE Library.
    7. Tarasov, Alexander & Felbermayr, Gabriel, 2014. "Trade and the Spatial Distribution of Transport Infrastructure," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100511, Verein für Socialpolitik / German Economic Association.
    8. Alix-Garcia, Jennifer M. & McIntosh, Craig & Sims, Katharine R. E. & Welch, Jarrod R., 2010. "The Ecological Footprint of Poverty Alleviation: Evidence from Mexico's Oportunidades Program," Staff Paper Series 549, University of Wisconsin, Agricultural and Applied Economics.
    9. Alex Trew, 2008. "Infrastructure Finance and Industrial Takeoff in the United Kingdom," CDMA Working Paper Series 200809, Centre for Dynamic Macroeconomic Analysis.
    10. Walker, Sarah, 2012. "The (Rail)road to Structural Change: Transportation Costs, Integration, and Production Specialization," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124614, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Currency Agreement; Customs Liberalization; Market Size; Steam Train; Trade; Transportation Technology;

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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