Why are Rich Countries More Politically Cohesive?

26 Pages Posted: 11 Apr 2013

See all articles by Carl‐Johan Dalgaard

Carl‐Johan Dalgaard

University of Copenhagen - Department of Economics

Ola Olsson

University of Gothenburg

Date Written: April 2013

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. Whoever has greater bargaining power will be willing to make decisions that enhance the productivity of their supporters at the expense of other groups in society. If the gains from specialization are 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, because the welfare of individuals will be mutually interdependent as a result of the exchange of goods.

Keywords: Economic growth, market exchange, political cohesion

JEL Classification: O41, P16

Suggested Citation

Dalgaard, Carl-Johan Lars and Olsson, Ola, Why are Rich Countries More Politically Cohesive? (April 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 2, pp. 423-448, 2013, Available at SSRN: https://ssrn.com/abstract=2248474 or http://dx.doi.org/10.1111/sjoe.12016

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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