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Why are Rich Countries more Politically Cohesive?

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  • Carl-Johan Dalgaard

    (Department of Economics, University of Copenhagen)

  • Ola Olsson

    (University of Gothenburg)

Abstract

We document empirically that rich countries are more politically cohesive than poorer countries. In order to explain this regularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market exchange, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the preferences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that enhance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non-cohesive under self-sufficiency, the political decision making process becomes cohesive in the market economy, as the welfare of individuals will be mutually interdependent due to the exchange of goods. We refer to this latter state as “capitalist cohesion”.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 09-23.

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Length: 25 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:kud:kuiedp:0923

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Keywords: political cohesion; economic growth;

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