Working Paper: CEPR ID: DP13634
Authors: Nikolaus Wolf; Thilo Huning
Abstract: If trade costs vary with trade routes, the location of a state can shape its bargaining power. To show this, we study an exogenous change in Prussian borders 1815 following a British intervention. This led to the formation of the Zollverein, the first customs union in history. We document how trade routes mattered for the decision of states to join a customs union. We present a model featuring tariffs that depend on location. Calibrated to historical data the model replicates sequence of historical decisions. With counterfactual borders absent Britain's intervention, the Zollverein would not have been formed.
Keywords: trade; transit trade; zollverein; geoeconomics
JEL Codes: F13; F15; F55; N73; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Change in Prussian borders in 1815 (N93) | Formation of the Zollverein (N93) |
| Change in Prussian borders in 1815 (N93) | Shift in trade routes (F19) |
| Shift in trade routes (F19) | Altered bargaining power of Prussia (N93) |
| Altered bargaining power of Prussia (N93) | Decisions to join the customs union (F55) |