Endogenous Formation of Free Trade Agreements: Evidence from the Zollverein’s Impact on Market Integration

The Zollverein was arguably the most important free trade agreement of the nineteenth century. Although 1834 is the official date of the Zollverein’s establishment, member states joined in a non-random sequence over several decades 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. We incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. Our estimated effects are several times larger than simple estimates that do not take these effects into account. The German Zollverein of 1834 was arguably the most important regional free trade agreement of the nineteenth century. It was the first time that politically independent states removed trade barriers between themselves and delegated tariff-setting authority to a higher body. Although other treaties can be found, none were as encompassing or long-lived. Jacob Viner (1950, p. 97) called it the “classic example” of a customs union. The importance of the Zollverein was magnified b