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Endogenous Formation of Free Trade Agreements: Evidence from the Zollverein's Impact on Market Integration

  • Wolfgang Keller (a1) and Carol H. Shiue (a2)

The Zollverein was arguably the most important free trade agreement of the nineteenth century. Although 1834 is the official date of the Zollverein's establishment, member states joined in a non-random sequence over several decades because the benefits of becoming a member increased, both as the size of the union increased, and as membership in the union became increasingly important for accessing foreign markets. We incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. Our estimated effects are several times larger than simple estimates that do not take these effects into account.

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We thank Rainer Fremdling, Florian Ploeckl, two referees and the editor, as well as seminar audiences at Berkeley, CEPR ERWIT, the Cliometric Society, Colorado, Harvard, Lund, the NBER, the Philly Fed, and Yale for useful comments. Michael Kopsidis provided us with data. NSF support under grant numbers SES 0453040 and 1124426 is gratefully acknowledged. This paper was written in part while both authors were National Fellows at Hoover Institution, Stanford University, whose hospitality is acknowledged as well.

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