Visible and invisible walls: World trade patterns and the end of the Cold War

Abstract

This paper revisits the empirical trade literature on East-West trade in the early 1990s and provides a replication of the traditional gravity findings of that period with the Baier-Bergstrand version of the model, providing thereby better estimates of the trade hindering impact of the Cold War by including multilateral and world resistance factors and simultaneously considering country fixed effects. Breaking down the Cold War Walls increased world trade by 2.7% of world GDP. The replication with the Baier-Bergstrand model also reveals that Cold War trade distortions also significantly impacted China's trade with the West.