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

Aug 2014 | 718

Authors: Ferdinand Rauch, Matthias Beestermoller

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.

JEL Codes: F14, F15, N33, N34, N94

Keywords: Trade, Gravity, Culture, Borders, Habsburg Empire, Persistence

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