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

Nikolaus Wolf and Max-Stephan Schulze

No 6327, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Border effects; market integration; Networks; Habsburg empire; Pre-1914 europe (search for similar items in EconPapers)
JEL-codes: F15 N13 Z13 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-geo, nep-his, nep-hpe, nep-int and nep-net
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