Working Paper: CEPR ID: DP17883
Authors: Elias Papaioannou; Oguzhan Celebi
Abstract: We consider a model of international unions in which countries have heterogeneous preferences for integration, and their integration decisions are strategic complements. We analyze equilibrium under several integration protocols that differ in the flexibility countries have in choosing how much to integrate. Unlike previous models with strategic substitutes, our results are in line with the evolution of the European Union (EU), where enlargement and flexible integration coincide with enhanced integration and are often spearheaded by the "core" countries. Moreover, when non-members (candidates, exiting countries, and other nations) can partially integrate with the union, as in practice, restrictions on their integration determine the union's size and scope and are necessary for fostering cooperation. Motivated by Brexit and the rise of euro-skepticism, we allow countries to leave the union and demonstrate how restrictions on the integration of leaving countries make the union robust to changes in members' preferences.
Keywords: International Unions; Integration; European Union; Strategic Complements; Brexit
JEL Codes: F53; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| countries with heterogeneous preferences for integration (F15) | strategic complementarities in decisions (D10) |
| one country increases its level of integration (F15) | incentivizes others to do the same (O31) |
| actions of core countries (e.g., Germany, France) (F55) | overall integration depth of the union (F02) |
| allowing non-member countries to partially integrate (F15) | influence robustness and size of the union (J51) |
| restrictions on non-member integration (F55) | maintain effective cooperation and integration within the union (F55) |