DP11159 Globalization and Political Structure

Author(s): Gino Gancia, Giacomo AM Ponzetto, Jaume Ventura
Publication Date: March 2016
Date Revised: September 2018
Keyword(s): Globalization, international unions, political structure, size of countries
JEL(s): D71, F15, F55, H77, O57
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11159

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.