DP9387 | The Trade Impact of the Zollverein

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The Zollverein was arguably the most important free-trade agreement of the 19th century. This paper investigates the economic impact of the Zollverein on trade in Germany. Although 1834 is the official date of the Zollverein's establishment, member states in fact joined in a non-random sequence over several decades. This was 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. Our key innovation in this paper is to incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. We find these effects are important--our estimated effects are several times larger than the simpler estimates that do not take these effects into account. The paper discusses the implications of this for Germany's economic history as well as for other studies of trade liberalization.