Working Paper: NBER ID: w26473
Authors: Gino Gancia; Giacomo A. M. Ponzetto; Jaume Ventura
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; trade; income distribution; welfare; political support
JEL Codes: D71; F15; F55; F62; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Similarity of member countries (F36) | Political support for the union (J58) |
| Economic size and endowments (R12) | Divergent views on union benefits (J50) |
| Intra-industry trade (F12) | Consumer benefits (D18) |
| Inter-industry trade (F14) | Winners and losers in political support (D72) |
| Larger and richer countries (O57) | Negative perception of the union (J51) |