Paper #1665

Title:

A theory of economic unions

Authors:

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

Date:

August 2019

Abstract:

After decades of successful growth, economic unions have recently become the focus of heightened political controversy. We argue that this is partly due to the growth of trade between countries that are increasingly dissimilar. 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. Our model shows that political support for international unions can grow with their breadth and depth as long as member countries are su¢ ciently similar. However, di§erences in economic size and factor endowments can trigger disagreement over the value of unions between and within countries. The model is consistent with some salient features of the process of European integration and statistical evidence from survey data.

Keywords:

Economic unions, non-tariff barriers, European intergation

JEL codes:

F15, F55, F62, H77, D71, D78

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Monetary Economics, 109, 2020, 107-127.

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