Working Paper: CEPR ID: DP14121
Authors: Jaume Ventura; Giacomo Ponzetto; Gino Gancia
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 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 as long as member countries are sufficiently similar. However, differences 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 integration
JEL Codes: F15; F55; F62; H77; D71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| breadth and depth of economic unions (F36) | political support for economic unions (F55) |
| disparities in economic size and factor endowments (F11) | political tensions (F52) |
| economic characteristics (P42) | political support for economic unions (F55) |
| economic unions yield both positive support and negative opposition (F55) | political outcomes (D72) |