Paper #1513

Title:

Globalization and political structure

Authors:

Gino Gancia, Giacomo A. M. Ponzetto and Jaume Ventura

Date:

August 2016 (Revised: October 2021)

Abstract:

This paper develops a theoretical framework to study the interaction between globalization and political structure. We show that political structure adapts in a non- monotonic way to declining transport costs. Borders hamper trade. At an earlier stage, the political response to expanding trade opportunities consists of removing borders by increasing country size. At a later stage, instead, it consists of removing the cost of borders by creating international unions. This leads to a reduction in country size. Moreover, diplomacy replaces conquest as a tool to ensure market access. These predictions are consistent with historical evidence on trade, territorial changes and membership of international unions.

Keywords:

Globalization, political structure, size of countries, international unions.

JEL codes:

D71, F15, F55, H77, O57

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of the European Economic Association, 20 (3), 2022, 1276-1310

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