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The impact of new borders on trade: World War I and the economic disintegration of Central Europe

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  • Heinemeyer, Hans Christian

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, which allows for evaluating the particular effect of new national borders. A gravity model of trade is used to analyze goods-specific trade among Central European regions. The main results are, first, that the treatment effect of new borders is large. Second, decomposing the border effect provides evidence of a 'border before border' for parts of Germany that became separated even before WWI. Third, the analysis indicates a high level of economic integration before WWI among Polish regions that became politically unified only after the war.

Suggested Citation

  • Heinemeyer, Hans Christian, 2006. "The impact of new borders on trade: World War I and the economic disintegration of Central Europe," Discussion Papers 2006/14, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:200614
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
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    5. Georges Ménil & Mathilde Maurel, 1994. "Breaking up a customs union: The case of the Austro-Hungarian Empire in 1919," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(3), pages 553-575, September.
    6. Russell Hillberry & David Hummels, 2003. "Intranational Home Bias: Some Explanations," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1089-1092, November.
    7. Wolf, Nikolaus, 2006. "Was Germany ever united? Borders and domestic trade, 1885 - 1933," Discussion Papers 2006/4, Free University Berlin, School of Business & Economics.
    8. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(2), pages 284-314, June.
    9. Wolf, Nikolaus, 2005. "Path dependent border effects: the case of Poland's reunification (1918-1939)," Explorations in Economic History, Elsevier, vol. 42(3), pages 414-438, July.
    10. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    11. Volker Nitsch, 2000. "National borders and international trade: evidence from the European Union," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1091-1105, November.
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