Why are Rich Countries More Politically Cohesive?

31 Pages Posted: 19 Oct 2009

See all articles by Carl‐Johan Dalgaard

Carl‐Johan Dalgaard

University of Copenhagen - Department of Economics

Ola Olsson

University of Gothenburg

Date Written: October 15, 2009

Abstract

We document empirically that rich countries are more politically cohesive than poorer countries. In order to explain this regularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market exchange, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the preferences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that enhance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non-cohesive under self-sufficiency, the political decision making process becomes cohesive in the market economy, as the welfare of individuals will be mutually interdependent due to the exchange of goods. We refer to this latter state as “capitalist cohesion”.

Keywords: plitical cohesion, economic growth

JEL Classification: P16, O41

Suggested Citation

Dalgaard, Carl-Johan Lars and Olsson, Ola, Why are Rich Countries More Politically Cohesive? (October 15, 2009). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 09-23, Available at SSRN: https://ssrn.com/abstract=1489395 or http://dx.doi.org/10.2139/ssrn.1489395

Carl-Johan Lars Dalgaard (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 3532 4407 (Phone)

Ola Olsson

University of Gothenburg ( email )

Vasagatan 1
Goteborg, 405 30
Sweden

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