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Nations, conglomerates, and empires : the tradeoff between income and sovereignty

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  • Milanovic, Branko

Abstract

One of the apparent inconsistencies in the breakup of multinational states is that, while the republics justified their decision by claiming they wanted increased sovereignty, the new states'strong desire to join the European Union shows their intention to dissipate this sovereignty. How can the two desires be reconciled? The author explains that full sovereignty is neither reachable nor desirable for most countries. Economic sovereignty is normally limited in key areas: exchange rate policy, trade policy, labor and banking regulations, and so on. There is a tradeoff curve between sovereignty and income. The author tests the following premises: a) larger countries (measured by GDP) are more sovereign; and b) countries with abundant natural resources or skilled workers as well as democratic countries tend to be more integrated. The author finds a statistically strong impact of per capita wealth and democracy on international integration. The effect of country size is weaker. The author discusses why different countries may wish to form conglomerates. He finds that the willingness to join conglomerates is greater for countries that are relatively poor and for democracies. The country size effect is U shaped. The key gain from independence for the relatively rich republics that were former members of the Communist conglomerates was not the economic sovereignty in itself but the ability to switch from a poor to a rich conglomerate.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1675.

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Date of creation: 31 Oct 1996
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Handle: RePEc:wbk:wbrwps:1675

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Payment Systems&Infrastructure; Fiscal&Monetary Policy; Labor Policies; Environmental Economics&Policies; National Governance; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Inequality; Economic Theory&Research;

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  1. Vaubel, Roland, 1994. " The Political Economy of Centralization and the European Community," Public Choice, Springer, vol. 81(1-2), pages 151-90, October.
  2. Alesina, Alberto & Perotti, Roberto & Spolaore, Enrico, 1995. "Togetheror separately? Issues on the costs and benefits of political and fiscal unions," European Economic Review, Elsevier, vol. 39(3-4), pages 751-758, April.
  3. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
  4. Paul Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
  5. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  6. Perotti, Roberto, 1992. "Income Distribution, Politics, and Growth," American Economic Review, American Economic Association, vol. 82(2), pages 311-16, May.
  7. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  8. Orlowski, Lucjan T, 1995. " Direct Transfers between the Former Soviet Union Central Budget and the Republics: Past Evidence and Current Implications," Economic Change and Restructuring, Springer, vol. 28(1), pages 59-73.
  9. Tarr David G., 1994. "The Terms-of-Trade Effects of Moving to World Prices on Countries of the Former Soviet Union," Journal of Comparative Economics, Elsevier, vol. 18(1), pages 1-24, February.
  10. Jack Hirshleifer, 1991. "The Paradox Of Power," Economics and Politics, Wiley Blackwell, vol. 3(3), pages 177-200, November.
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Cited by:
  1. Joan Costa Font & Ramon Tremosa Balcells, 2006. "National Identity and the Preference for State Opting-Out in the Basque Country," Working Papers in Economics 151, Universitat de Barcelona. Espai de Recerca en Economia.

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