DP11159 Globalization and Political Structure

Author(s): Gino Gancia, Giacomo AM Ponzetto, Jaume Ventura
Publication Date: March 2016
Date Revised: December 2020
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 in a non-monotonic way to technological progress that expands opportunities for global trade. Borders hamper trade. At an earlier stage, the political response to expanding trade opportunities consists of removing borders by increasing country size. At a later stage, however, the political response to expanding trade opportunities 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.