From Political Fragmentation towards a Customs Union: Border Effects of the German Zollverein, 1815 to 1855

Over the first half of the 19 century, the Prussian-German Customs Union known as the Zollverein gradually unified a scattered confederation of sovereign states under an internal free trade agreement. This paper uses grain prices to quantify the differential effect of the Zollverein for market integration among Zollverein members versus European powers that were not part of the Zollverein, including France, Switzerland, and the Habsburg Empire of Austria. Overall, this border effect is consistently and substantially less than border effect estimates from contemporary samples. For the 1834 liberalization round, the implied border effect, calculated as the implied decrease in distance that comes about as the result of the customs border being eliminated, is between 140 and 160 kilometers, with the smaller distance for non-German speaking cities, and the larger distance for German speaking cities. Thus, common language in this sample provides an additional benefit of lowering trade barriers by 11-15% in distance, making border elimination more valuable among German-speaking cities than for mixedlanguage-speaking cities. The paper offers a few reasons for why I estimate smaller border effects than are found in studies on 20 century economies, and the analysis gives a new historical perspective on what drives trade costs and changes in market integration. 1 I would like to thank Timothy Guinnane for comments, Wolfgang Keller for comments as well as help with the German-language sources, Bertrand Roehner for providing the French data series in electronic format, and Kari Hodges and Lianne Stachnik for assistance with data entry. I also thank Andreas Kunz for supplying a number of maps. Anonymous referees and the editors of this journal provided helpful suggestions. 2 Department of Economics, University of Texas, BRB 2.126, Austin, TX 78712; email: [email protected]