  The Cold War was the defining episode of geopolitical fragmentation in the
twentieth century. Trade between East and West across the Iron Curtain (a
symbolical and physical barrier dividing Europe into two distinct areas) was
restricted, but the severity of these restrictions varied over time. We
quantify the trade and welfare effects of the Iron Curtain and show how the
difficulty of trading across the Iron Curtain fluctuated throughout the Cold
War. Using a novel dataset on trade between the two economic blocs and a
quantitative trade model, we find that while the Iron Curtain at its height
represented a tariff equivalent of 48% in 1951, trade between East and West
gradually became easier until the fall of the Berlin Wall in 1989. Despite the
easing of trade restrictions, we estimate that the Iron Curtain roughly halved
East-West trade flows and caused substantial welfare losses in the Eastern bloc
countries that persisted until the end of the Cold War. Conversely, the Iron
Curtain led to an increase in intra-bloc trade, especially in the Eastern bloc,
which outpaced the integration of Western Europe in the run-up to the formation
of the European Union.
