Endogenous Borders? Exploring a Natural Experiment on Border Effects

Hans Christian Heinemeyer, Max Stephan Schulze and Nikolaus Wolf ()

No 6909, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A large literature documents the impact of borders on trade. However, in all these studies border effects are identified from cross-sectional variation alone. We do not know the "treatment effect" of borders nor can we rule out reverse causation. Here, we exploit the border changes imposed across Europe by the peace treaties in 1919-20 as a natural experiment. We estimate the effects of borders on trade with a difference in difference approach and find that the "treatment effects" of borders are significantly smaller than the pure cross-sectional effects. We show that this is related to ethno-linguistic networks. Borders shape trade, and trade shapes borders.

Keywords: Border Effects; European history; treatment effects (search for similar items in EconPapers)
JEL-codes: F12 F15 N13 N14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: Written 2008-07

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