A Dissection of Trading Capital: Cultural persistence of trade in the aftermath of the fall of the Iron Curtain

Beestermöller, Matthias and Rauch, Ferdinand (11. September 2014): A Dissection of Trading Capital: Cultural persistence of trade in the aftermath of the fall of the Iron Curtain. Discussion Papers in Economics 2014-46

Abstract

We show that the countries of the former Austro-Hungarian monarchy trade significantly more with one another in the aftermath of the collapse of the Iron Curtain than predicted by a standard gravity model. This trade surplus declines linearly and monotonically over time. We argue that these findings suggest that decaying cultural forces explain a significant part of trading capital. We document the rate of decay of these cultural forces.

• Item Type: Paper
• Keywords: Trade, Gravity, Culture, Borders, Habsburg Empire, Persistence
• Faculties: Economics; Economics > Munich Discussion Papers in Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: F14, F15, N33, N34, N94
• Language: English

References

[1] Acemoglu, Daron, Simon Johnson, and James A. Robinson, 2002, Reversal of fortune: Geography and institutions in the making of the modern world income distribution, The Quarterly Journal of Economics, 117.4, 1231-1294.

[2] Alesina, Alberto, Paola Giuliano, and Nathan Nunn, 2013, On the Origins of Gender Roles: Women and the Plough, The Quarterly Journal of Economics, 128.2, 469-530.

[3] Algan, Yann, and Pierre Cahuc, 2010, Inherited trust and growth, The American Economic Review, 2060-2092.

[4] Anderson, James E., Van Wincoop, Eric, Gravity with Gravitas: A Solution to the Border Puzzle, The American Economic Review, 93.1, 170-192.

[5] Anderson, James E., and Yoto V. Yotov. Gold standard gravity. No. w17835. National Bureau of Economic Research, 2012.

[6] Baltagi, B.H., 1995. Econometric Analysis of Panel Data. Wiley.

[7] Becker, S., Boeckh, K., Hainz, C., and Woessmann, L., 2011, The empire is dead, long live the empire! Long-run persistence of trust and corruption in the bureaucracy.

[8] Butschek, Felix, 1996, Statistische Reihen zur Österreichischen Wirtschaftsgeschichte, WIFO Wien.

[9] Clark, Christopher, 2013, The Sleepwalkers, How Europe went to war in 1914, Penguin Books.

[10] De Menil, Georges and Mathilde Maurel, 1994, Breaking up a Customs Union: the Case of the Austro-Hungarian Empire in 1919, Weltwirtschaftliches Archiv, 130, 553-75.

[11] Disdier, Anne-Celia, and Thierry Mayer, 2007, Je t'aime, moi non plus: Bilateral Opinions and International Trade, European Journal of Political Economy, 23.4, 1140-1159.

[12] Dell, Melissa, Benjamin F. Jones, and Benjamin A. Olken, 2013, What do we learn from the weather? The new climate-economy literature, National Bureau of Economic Research, w19578.

[13] Dixon, William J., and Bruce E. Moon, 1993, Political similarity and American foreign trade patterns, Political Research Quarterly, 46.1, 5-25.

[14] Djankov, Simeon and Caroline Freund, 2002, Trade Flows in the Former Soviet Union, 1987 to 1996, Journal of Comparative Economics, 30, 76-90.

[15] Dornbusch, R., 1991, Monetary Problems of Post-Communism: Lessons from the end of the Austro-Hungarian Empire, Weltwirtschaftliches Archiv, 128, 391-424.

[16] Durante, Ruben, 2010, Risk, cooperation and the economic origins of social trust: an empirical investigation

[17] Egger, Peter, 2000, A note on the proper econometric speci_cation of the gravity equation, Economics Letters, 66.1, 25-31.

[18] Egger, Peter, and Andrea Lassmann, 2013, The Causal Impact of Common Native Language on International Trade: Evidence from a Spatial Regression Discontinuity Design, Centre for Economic Policy Research.

[19] Egger, Hartmut and Peter Egger, 2003, Outsorcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain, Oxford Economic Papers, 55, 625-643.

[20] Erdösi, Ferenc, `Regional Characteristics of the Development of the Transportation and Telecommunication during the Systematic Change', in Hajdu (edt.) `Regional processes and spatial structures in Hungary in the 1990s', Center for regional studies, Pecs 1999.

[21] Feenstra, Robert C., Robert E. Lipsey, Haiyan Deng, Alyson C. Ma, and Hengyong Mo, 2005, World trade ows: 1962-2000, No. w11040, National Bureau of Economic Research.

[22] Feenstra, R., 2004. Advanced International Trade. Princeton University Press, Princeton.

[23] Felbermayr, Gabriel, and Jasmin Gröschl, 2013, Within US Trade and the Long Shadow of the American Secession, Economic Inquiry.

[24] elbermayr, Gabriel J., and Wilhelm Kohler, 2006, Exploring the intensive and extensive margins of world trade, Review of World Economics, 142.4, 642-674.

[25] Felbermayr, G. J., and Toubal, F., 2010, Cultural proximity and trade, European Economic Review, 54(2), 279-293.

[26] Good, D. F., 1984, The Economic Rise of the Habsburg Empire 1750-1918, Berkeley CA, University of California Press.

[27] Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2009, Cultural biases in economic exchange?, The Quarterly Journal of Economics 124.3, 1095-1131.

[28] Head, Keith, Thierry Mayer and John Ries, 2010, The erosion of colonial trade linkages after independence, Journal of International Economics, 81, 1-14.

[29] Head, Keith and Thierry Mayer, 2013, Gravity Equations: Workhorse, Toolkit, and Cookbook, Handbook of International Economics, 4, Gopinath, Helpman and Rogoff (edts.).

[30] Jeffreys, Diarmuid, 2007, The Austro-Hungarian Empire - New Holland History Maps, New Holland Publishers Ltd.

[31] Lameli, Alfred, Volker Nitsch, Jens Südekum and Nikolaus Wolf, 2013, Same Same But Different: Dialects and Trade, IZA Discussion Paper No. 7397.

[32] Lazarevic, Zarko, 2010, Yugoslavia: Economic aspects of the position between East and West, in Gaps in the Iron Curtain: Economic Relations between Neutral and Socialist Countries in Cold War Europe. Edited by Gertrude Enderle-Burcel, Piotr Franaszek, Dieter Stiefel, and Alice Teichova. Krakow: Jagiellonian University Press, ISBN: 978-8-323-32532-1 <a href="javascript:" cref="CitaviPicker978-8-323-32532-1"><img style="border: 0px none;height: 18px;width: 18px;" src="http://www.citavi.com/favicon.ico" title='Titel anhand dieser ISBN in Citavi-Projekt übernehmen'/></a> .

[33] Marin, Dalia, 2006, A new international division of labor in Europe: Outsourcing and offshoring to Eastern Europe, Journal of the European Economic Association, 4(2-3), 612-622.

[34] Martin, W., Pham, C., 2009, Estimating the gravity model when zero trade ows are frequent, World Bank manuscript.

[35] Mayer, Thierry, and Soledad Zignago. 2011, Notes on CEPII's distances measures: The GeoDist database.

[36] McCallum, John, 1995, National borders matter: Canada-US regional trade patterns, The American Economic Review, 85.3, 615-623.

[37] Luttmer, Erzo FP, and Monica Singhal, 2008, Culture, context, and the taste for redistribution, National Bureau of Economic Research, w14268.

[38] Melitz, Jacques, and Farid Toubal, 2012, Native language, spoken language, translation and trade.

[39] Michaels, G., and Zhi, X., 2010, Freedom fries, The American Economic Journal: Applied Economics, 2(3), 256-281.

[40] Nitsch, Volker and Nikolaus Wolf, 2011, Tear Down this Wall: On the Persistence of Borders in Trade, Working Paper.

[41] Nickell, Stephen, 1981, Biases in dynamic models with fixed effects, Econometrica, 49.6, 1417-1426.

[42] North, Douglass C. Institutions, 1990, Institutional change and economic performance, Cambridge university press.

[43] Nunn, Nathan, and Leonard Wantchekon, 2011, The slave trade and the origins of mistrust in Africa, The American Economic Review, 101, 3221-3252.

[44] Ostrom, Elinor, 1990, Governing the commons: The evolution of institutions for collective action, Cambridge University Press.

[45] Pogany, Agnes, 2010, Co-operation through the Iron Curtain: economic relations between Austria and Hungary after the Second World War, in Gaps in the Iron Curtain: Economic Relations between Neutral and Socialist Countries in Cold War Europe. Edited by Gertrude Enderle-Burcel, Piotr Franaszek, Dieter Stiefel, and Alice Teichova. Krakow: Jagiellonian University Press, 2009. ISBN: 978-8-323-32532-1 <a href="javascript:" cref="CitaviPicker978-8-323-32532-1"><img style="border: 0px none;height: 18px;width: 18px;" src="http://www.citavi.com/favicon.ico" title='Titel anhand dieser ISBN in Citavi-Projekt übernehmen'/></a> .

[46] Rauch, Ferdinand, 2014, A Fable of Bees and Gravity, Oxford Departmental Working Paper.

[47] Redding, Stephen J. and Daniel M. Sturm, 2008, The Costs of Remoteness: Evidence from German Division and Reunification, The American Economic Review, 98(5), 1766-1797.

[48] Resch, Andreas, 2010, Forty years of foreign trade between Austria and the CMEA area, in Gaps in the Iron Curtain: Economic Relations between Neutral and Socialist Countries in Cold War Europe. Edited by Gertrude Enderle-Burcel, Piotr Franaszek, Dieter Stiefel, and Alice Teichova. Krakow: Jagiellonian University Press, 2009. ISBN: 978-8-323-32532-1 <a href="javascript:" cref="CitaviPicker978-8-323-32532-1"><img style="border: 0px none;height: 18px;width: 18px;" src="http://www.citavi.com/favicon.ico" title='Titel anhand dieser ISBN in Citavi-Projekt übernehmen'/></a> .

[49] Thom, Rodney, and Brendan Walsh, 2002, The effect of a currency union on trade: Lessons from the Irish experience, European Economic Review, 46.6, 1111-1123.

[50] Silva, JMC Santos, and Silvana Tenreyro, 2006, The log of gravity, The Review of Economics and statistics, 88.4, 641-658.

[51] Schulze, Max-Stephan, 2010, Patterns of growth and stagnation in the late nineteenth century Habsburg economy, European Review of Economic History, 4, 311-340.

[52] Schulze, Max-Stephan and Nikolaus Wolf, 2009, On the origins of border effects: insights from the Habsburg Empire, Journal of Economic Geography, 9, 117-136.

[53] Schulze, Max-Stephan and Nikolaus Wolf, 2012, Economic nationalism and economic integration: the Austro-Hungarian Empire in the late nineteenth century, Economic History Review, 65, 2, 652-673.

[54] Umana Dajud, C, 2013, Political Proximity and International Trade, Economics and Politics, 25.3, 283-312.

[55] United Nations, Definitions of European Countries, obtained from http://unstats.un.org/unsd/methods/m49/m49regin.htm in June 2013.

[56] United Nations World Development Indicators, obtained from http://databank.worldbank.org/data in June 2013.

[57] Voigtlander, Nico, and Hans-Joachim Voth, 2012, Persecution Perpetuated: The Medieval Origins of Anti-Semitic Violence in Nazi Germany, The Quarterly Journal of Economics, 127.3, 1339-1392.