Full and Federal Integration of Asymmetric Nations

34 Pages Posted: 19 Sep 2008

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Kieron Meagher

Australian National University (ANU) - School of Economics

Ernie G. S. Teo

NUS Business School

Date Written: September, 19 2008

Abstract

We examine the incentives for integration between two nations of different sizes in a set up similar to Alesina and Spolaore (2003): individuals are indexed by location, each nation (comprising of individuals) is an interval, and the public good in each nation is provided from its capital - located in the middle of the nation. We begin with an analysis of full integration, where upon integration, each country gives up its sovereignty and there is a joint decision about the location of the new nation's capital. Then, we extend our analysis to federated integration where each country maintains its capital but upon integration nations jointly decide a unique level of infrastructure provision (which lowers transportation costs). For both full as well as federated integration, a robust finding is that integration occurs if the size differences are smaller than a threshold. Despite this robust finding, there is a key difference between the two cases. Except when capital relocation is costly, the benefits of integration are larger for small nation in the full integration case while the opposite is true for the federated integration. Thus, while opposition to full scale integration might come from large nations, the opposition for federated integration might well come from smaller nations.

Keywords: Nations, Integration, Federation, Voting, Referendum, Location

JEL Classification: H00, R1, C7, D72

Suggested Citation

Ghosh, Arghya and Meagher, Kieron and Teo, Ernie G. S., Full and Federal Integration of Asymmetric Nations (September, 19 2008). Available at SSRN: https://ssrn.com/abstract=1270478 or http://dx.doi.org/10.2139/ssrn.1270478

Arghya Ghosh

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Kieron Meagher

Australian National University (ANU) - School of Economics ( email )

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia

Ernie G. S. Teo (Contact Author)

NUS Business School ( email )

15 Kent Ridge Drive
119245
Singapore

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