Abstract
After decades of successful growth, economic unions have recently become the focus of heightened political controversy. To understand why, we develop a theoretical model of the effects on trade, income distribution and welfare of economic unions that differ in size and scope. Our model shows that political support for international unions can grow with their breadth and depth provided member countries are sufficiently similar. However, differences in economic size and factor endowments can trigger disagreement over the value of unions. Our model is consistent with some salient features of the process of European integration and statistical evidence from survey data.
Highlights
The development of global markets increasingly relies on international institutions providing common regulation to reduce or remove non-tari¤ barriers that hamper trade across national borders
To shed light on these phenomena, in this paper we develop a theoretical framework to study the e¤ects on trade, income distribution and welfare of economic unions that di¤er in size and scope
While all the papers in this literature study unilateral policy choices, we focus on political support for existing international unions
Summary
The development of global markets increasingly relies on international institutions providing common regulation to reduce or remove non-tari¤ barriers that hamper trade across national borders. Several papers build on the insight from theories of federalism (Oates 1972) that unions, like centralized jurisdictions, reap the bene...ts of coordination and market integration, but at the cost of imposing uniform policies on members with di¤erent preferences (Bolton and Roland 1996, 1997; Alesina and Wacziarg 1999; Alesina, Spolaore and Wacziarg 2000; Casella 2001; Casella and Feinstein 2002; Alesina, Angeloni and Etro 2005; Gancia, Ponzetto and Ventura 2018). These papers have studied how the size of jurisdictions changes with exogenous changes in the costs of trade. While all the papers in this literature study unilateral policy choices, we focus on political support for existing international unions
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