Cross-Cultural Trade and Institutional Stability

Marianna Belloc

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 25

Abstract: Traditional trade theory maintains that international economic integration always yields potential welfare benefits. This result can however be maintained only in a world bereft of its institutional and cultural dimensions. In this paper we show that, once institutional factors are introduced, integration may be detrimental to welfare. Exploiting a game theoretical approach, we consider the integration between two societies that only differ in their institutional structures. Two important results are derived. First, intercommunity integration may trigger the demise of the erstwhile internal arrangements. Second, the collapse of the domestic institutional equilibrium can lead to a loss of welfare for the community as a whole.

Keywords: institutions; cultural beliefs; institutional diversity; economic integration; market development (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/1935-1704.1565

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