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Why Join a Common Market? The Political Economy of International Factor Mobility in a Multi-country Setting

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  • Facchini, Giovanni

    (U of Illinois at Urbana-Champaign)

Abstract

This paper develops a theory of the endogenous formation of a common market in a three-country, n factor political economy model. Ex ante policies in each of the prospective members are the result of direct democracy, and equilibrium outcomes may include both import restrictions as well as subsidies. The decision to join a common market is modelled as a simultaneous move game between the two prospective members. Several interesting results emerge. First, ex ante differences in subsidies do not affect the attitude of the median voter. Second, for a common market to emerge, ex post factor flows between prospective members have to be balanced. Third, the likelihood that a common market emerges increases with the number of factors enjoying ex post enhanced protection. This last result highlights the potential tension between social desirability and political feasibility of the common market.

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Bibliographic Info

Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 02-0121.

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Date of creation: 2002
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Handle: RePEc:ecl:illbus:02-0121

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Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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  1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "Institutional Rules for Federations," Harvard Institute of Economic Research Working Papers 1940, Harvard - Institute of Economic Research.
  2. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  3. Scholten, Ulrich & Thum, Marcel, 1996. " Public Pensions and Immigration Policy in a Democracy," Public Choice, Springer, vol. 87(3-4), pages 347-61, June.
  4. Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2001. "The Political Economy of International Unions," CEPR Discussion Papers 3117, C.E.P.R. Discussion Papers.
  5. Ashley S. Timmer & Jeffrey G. Williamson, 1996. "Racism, Xenophobia or Markets? The Political Economy of Immigration Policy Prior to the Thirties," NBER Working Papers 5867, National Bureau of Economic Research, Inc.
  6. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October.
  7. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  8. Facchini, Giovanni & Willmann, Gerald, 2005. "The political economy of international factor mobility," Journal of International Economics, Elsevier, vol. 67(1), pages 201-219, September.
  9. Grinols, Earl L., 1981. "An extension of the Kemp-Wan theorem on the formation of customs unions," Journal of International Economics, Elsevier, vol. 11(2), pages 259-266, May.
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