Globalization and Political Structure

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

NBER Working Paper No. 22046
Issued in February 2016, Revised in September 2018
NBER Program(s):Economic Fluctuations and Growth

This paper develops a theoretical framework to study the interaction between globalization and political structure. We show that political structure adapts to expanding trade opportunities in a non-monotonic way. Borders hamper trade. In its early stages, the political response to globalization consists of removing borders by increasing country size. In its later stages, however, the political response to globalization is to remove borders by creating international unions, and this leads to a reduction in country size. Moreover, negotiation replaces war as a tool to ensure market access. These predictions are consistent with historical evidence on trade, territorial expansion and war.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w22046

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