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State formation and market integration: Germany, 1780–1830

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  • Albers, Hakon
  • Pfister, Ulrich

Abstract

The rise of modern states is an important factor for economic development. We test the effects of territorial consolidation and the increase in legal capacity on market integration. The political transformation of Germany in the wake of the Napoleonic Wars, which reduced territorial fragmentation and transformed former semi-autonomous estates to sovereign polities, serves as a natural experiment. We apply a difference-in-differences framework to a new dataset of grain prices and show that territorial consolidation reduced trade costs conditional on trade reforms that replaced heterogenous internal duties by a unified system of external tariffs. The effect was equivalent to a reduction of price gaps by 31 percent. Cities that were part of Prussia both before and after the Wars and experienced trade reform saw a reduction in price gaps of similar magnitude. By contrast, there was no market integration in late-reformer states such as Hanover and Saxony. Trade reforms were the main channel through which territorial consolidation fostered market integration.

Suggested Citation

  • Albers, Hakon & Pfister, Ulrich, 2023. "State formation and market integration: Germany, 1780–1830," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 403-421.
    • Handle: RePEc:eee:jcecon:v:51:y:2023:i:2:p:403-421
    DOI: 10.1016/j.jce.2023.01.007
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    More about this item

    Keywords

    State formation; Market integration; Tariffs; Border; War;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • N53 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Europe: Pre-1913
    • N73 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: Pre-1913
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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