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Trade as Engine of Political Change: A Parable

Author

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  • Alessandra Casella.

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 meant 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 one of them are heterogenous, but administrative costs initially make the formation of two separate jurisdictions too expensive. However, as the market expands, 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.
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Suggested Citation

  • Alessandra Casella., 1993. "Trade as Engine of Political Change: A Parable," Center for International and Development Economics Research (CIDER) Working Papers C93-012, University of California at Berkeley.
    • Handle: RePEc:ucb:calbcd:c93-012
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    Cited by:

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    2. Barry Eichengreen., 1993. "The Crisis in the EMS and the Transition to EMU: An Interim Assessment," Center for International and Development Economics Research (CIDER) Working Papers C93-022, University of California at Berkeley.
    3. Barry Eichengreen., 1993. "Prerequisites for International Monetary Stability," Center for International and Development Economics Research (CIDER) Working Papers C93-018, University of California at Berkeley.
    4. Barry Eichengreen., 1993. "Thinking about Migration: Notes on European Migration Pressures at the Dawn of the Next Millennium," Center for International and Development Economics Research (CIDER) Working Papers C93-019, University of California at Berkeley.
    5. Jeffrey A. Frankel and Norbert Funke., 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers C94-035, University of California at Berkeley.

    More about this item

    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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