Globalization and Political Structure

Authors: Gino Gancia, Giacomo A.M. Ponzetto and Jaume Ventura

Journal of the European Economic Association, Vol. 20, No 3, 1276-1310, June, 2022

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 declining transport costs. 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, instead, it consists of removing the cost of borders by creating international unions. This leads to a reduction in country size. Moreover, diplomacy replaces conquest as a tool to ensure market access. These predictions are consistent with historical evidence on trade, territorial changes and membership of international unions.

This paper originally appeared as Barcelona School of Economics Working Paper 878