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Institutions, Technology, and Trade

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  • Wolfgang Keller
  • Carol H. Shiue

Abstract

We study the importance of technology and institutions in determining the size of markets in five different countries and fifteen different German states. The setting of 19th century Europe presents a unique opportunity to address this issue, since it witnessed fundamental change in both dimensions. At the beginning of the century, numerous customs borders, separate currencies with different monetary systems, and poor transportation facilities were major obstacles that held back trade. Important institutional change, through the Zollverein customs treaties and currency unification, and major technological innovations in the steam train all had a role in increasing market size as measured in terms of the spatial dispersion of grain prices across 68 markets. However, we find that the impact of steam trains is substantially larger than the effects from customs liberalizations and currency agreements in increasing market size, where correcting for the potential endogeneity in institutional and technological changes are crucial for this result. We also find that a state's institutions influence the rate of adoption of steam trains, thereby identifying an important indirect effect from institutions on economic performance. The institutional and technological changes account for almost all of the decline in price gaps over this period.

Suggested Citation

  • Wolfgang Keller & Carol H. Shiue, 2008. "Institutions, Technology, and Trade," NBER Working Papers 13913, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13913
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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. Uebele, Martin, 2011. "National and international market integration in the 19th century: Evidence from comovement," Explorations in Economic History, Elsevier, vol. 48(2), pages 226-242, April.
    3. repec:got:cegedp:145 is not listed on IDEAS
    4. Abhijit Banerjee & Esther Duflo & Nancy Qian, 2012. "On the Road: Access to Transportation Infrastructure and Economic Growth in China," NBER Working Papers 17897, National Bureau of Economic Research, Inc.
    5. Holger Strulik, 2014. "Knowledge And Growth In The Very Long Run," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 459-482, May.
    6. Wolfgang Keller & Carol H. Shiue, 2013. "The Link Between Fundamentals and Proximate Factors in Development," NBER Working Papers 18808, National Bureau of Economic Research, Inc.
    7. Berger, Thor & Enflo, Kerstin, 2017. "Locomotives of local growth: The short- and long-term impact of railroads in Sweden," Journal of Urban Economics, Elsevier, vol. 98(C), pages 124-138.
    8. Barham, Tania & Lipscomb, Molly & Mobarak, Ahmed Mushfiq, 2011. "Development Effects of Electrification: Evidence from the Geologic Placement of Hydropower Plants in Brazil," CEPR Discussion Papers 8427, C.E.P.R. Discussion Papers.
    9. Erik Hornung, 2012. "Human Capital, Technology Diffusion, and Economic Growth - Evidence from Prussian Census Data," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 46, March.
    10. Jennifer M. Alix-Garcia & Elizabeth N. Shapiro & Katharine R. E. Sims, 2012. "Forest Conservation and Slippage: Evidence from Mexico’s National Payments for Ecosystem Services Program," Land Economics, University of Wisconsin Press, vol. 88(4), pages 613-638.
    11. Krammer, Sorin M.S., 2015. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," Technological Forecasting and Social Change, Elsevier, vol. 94(C), pages 133-154.
    12. Hornung, Erik, 2012. "Railroads and Micro-regional Growth in Prussia," CAGE Online Working Paper Series 80, Competitive Advantage in the Global Economy (CAGE).
    13. He, Xiaobo, 2013. "Wages and Access to International Markets: Evidence from Urban China," MPRA Paper 44537, University Library of Munich, Germany.

    More about this item

    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
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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