Working Paper: CEPR ID: DP5202
Authors: Enrico Spolaore; Romain Wacziarg
Abstract: This paper presents a framework to understand and measure the effects of political borders on economic growth and per capita income levels. In our model, political integration between two countries results in a positive country size effect and a negative effect through reduced openness vis-à-vis the rest of the world. Additional effects stem from possible changes in other growth determinants, besides country size and openness, when countries are merged. We estimate the growth effects that would have resulted from the hypothetical removal of national borders between pairs of adjacent countries under various scenarios. We identify country pairs where political integration would have been mutually beneficial. We find that full political integration would have slightly reduced an average country's growth rate, while most countries would benefit from a more limited form of merger, involving higher economic integration with their neighbours.
Keywords: economic growth; economic integration; political unions
JEL Codes: F1; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political Integration (F55) | Economic Growth (O49) |
| Country Size Effect (R12) | Economic Growth (O49) |
| Reduced Openness (D80) | Economic Growth (O49) |
| Political Integration (F55) | Reduced Openness (D80) |
| Political Integration (F55) | Overall Economic Growth Effect (O49) |
| Hypothetical Mergers (G34) | Mutual Economic Benefits (F15) |
| Lower Trade Barriers (F19) | Economic Growth (O49) |