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Discussion Paper Details

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Title: Endogenous Borders? Exploring a Natural Experiment on Border Effects

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

Publication Date: July 2008

Keyword(s): Border Effects, European history and treatment effects

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Heinemeyer, H, Schulze, M and Wolf, N. 2008. 'Endogenous Borders? Exploring a Natural Experiment on Border Effects'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6909