Trade as Engine of Political Change: A Parable

Alessandra Casella

No 233188, Center for International and Development Economics Research (CIDER) Working Papers from University of California-Berkeley, Department of Economics

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.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 36
Date: 1993-02
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Trade as an Engine of Political Change. A Parable (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbewp:233188

DOI: 10.22004/ag.econ.233188

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