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

On the Origins of Border Effects: Insights from the Habsburg Customs Union[1]

Max-Stephan Schulze[2] and Nikolaus Wolf[3]*

CSGR Working Paper Series 231/07

June 2007

Abstract:

This paper examines the emergence and dynamics of border effects over time. We exploit the unique historical setting of the multi-national 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

JEL classification: N13, F15, Z13

Contact details:

Nikolaus Wolf

CSGR, University of Warwick

Coventry CV4 7AL

United Kingdom



[1] We thank the Fritz Thyssen Foundation for project grant ‘The trade network of Central Europe, 1850-1939’. M.S. Schulze gratefully acknowledges support received through a British Academy/Leverhulme Trust Senior Research Fellowship. Thanks are due to Dudley Baines, Nick Crafts and Dennis Novy for helpful suggestions and to Hiroshi Shimizu and Felipe Fernandes for research assistance. Earlier versions of this paper were presented at the UEE-RTN Workshop Warwick, the Berlin Colloquium, the EHS Conference Reading, the Second German Cliometrics Conference Tübingen, the ASSA meeting Chicago and seminars at Warwick University and the London School of Economics. We are grateful for participants’ comments.

[2] London School of Economics, Department of Economic History,

Houghton Street, London WC2A 2AE, United Kingdom, e-mail: m.s.schulze@lse.ac.uk,

[3] Centre for the Study of Globalisation and Regionalisation, The University of Warwick, Coventry, CV4 7AL, United Kingdom and CEPR, London, UK, email: nikolaus.wolf@warwick.ac.uk. * corresponding author.