Why are Rich Countries More Politically Cohesive?
26 Pages Posted: 11 Apr 2013
Date Written: April 2013
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: Suggested Citation