Tear down this wall: on the persistence of borders in trade

Volker Nitsch · Nikolaus Wolf

61 citations0/0 files storedCanadian Journal of Economics/Revue canadienne d économique

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Global trade and economics Historical Economic and Social Studies Cross-Border Cooperation and Integration

Abstract

Abstract Why do borders still matter for economic activity? The reunification of Germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade. With the fall of the Berlin Wall and the rapid formation of a political and economic union, strong and strictly enforced administrative barriers to trade between East Germany and West Germany were eliminated completely within a very short period of time. Remarkable persistence in intra‐German trade patterns along the former East‐West border suggests that border effects are neither statistical artefacts nor driven by administrative barriers to trade, but arise from economic fundamentals.

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References

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