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Trade as an Engine of Political Change. A Parable

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  • Casella, Alessandra

Abstract

If efficient economic activity requires appropriate public goods, then changes in the volume and flow of trade will induce changes in the demand for these public goods. In general, if people disagree over their preferred levels of public goods, the expansion of trade may affect the structure of jurisdictions responsible for their provision. This paper presents a simple example, a parable, designed to illustrate the general principle. It studies a general equilibrium model where the size of the market is easily parametrized and welfare depends on private exchange and two public goods. Preferences over the second of these public goods are heterogeneous, but administrative costs initially make the formation of two separate jurisdictions too expensive. As the market expands, however, reliance on the public goods increases and with it the importance of having access to the correct public good. A federal system becomes optimal when the market is sufficiently large.

Suggested Citation

  • Casella, Alessandra, 1993. "Trade as an Engine of Political Change. A Parable," CEPR Discussion Papers 779, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:779
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    Cited by:

    1. repec:spr:sjecst:v:154:y:2018:i:1:d:10.1186_s41937-017-0015-6 is not listed on IDEAS
    2. Grégoire Rota Graziosi, 2004. "La fragmentation politique, une revue de la littérature," Revue Française d'Économie, Programme National Persée, vol. 18(4), pages 193-223.
    3. Grégoire ROTA-GRAZIOSI, 2006. "Economic integration and political fragmentation," Working Papers 200628, CERDI.
    4. Schiff, Maurice & Winters, L. Alan, 2002. "Regional cooperation, and the role of international organizations and regional integration," Policy Research Working Paper Series 2872, The World Bank.
    5. Porta, Pier Luigi & Scazzieri, Roberto, 1997. "Towards an economic theory of international civil society: Trust, trade and open government," Structural Change and Economic Dynamics, Elsevier, vol. 8(1), pages 5-28, March.

    More about this item

    Keywords

    Economic Integration; Federalism; Jurisdictions;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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