International Integration and Social Identity

70 Pages Posted: 2 Jul 2018 Last revised: 10 Dec 2020

See all articles by Boaz Abramson

Boaz Abramson

Stanford University - Department of Economics

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics

Date Written: December 10, 2020

Abstract

This paper contributes to the literature incorporating social identity into international economics. We develop a theoretical framework for studying the interplay between international integration and identity politics, taking into account that both union policies and identities in candidate countries are endogenous. We find that, in general, a union is more fragile when peripheral member countries have higher status than the Core, as this leads to stronger national identification in equilibrium and lower willingness to compromise. Low-status countries are less likely to secede, even when between-country differences in optimal policies are large and although equilibrium union policies impose significant economic hardship. Contrary to a common anticipation among union advocates, mutual solidarity is unlikely to emerge as a result of integration. Applied to currency unions, we show that the model helps explain the composition of the euro area.

Keywords: International Integration, Social Identity, Currency Unions, EU, Euro, Brexit, Grexit

JEL Classification: F02, E71, D72, Z1

Suggested Citation

abramson, boaz and Shayo, Moses, International Integration and Social Identity (December 10, 2020). Available at SSRN: https://ssrn.com/abstract=3187594 or http://dx.doi.org/10.2139/ssrn.3187594

Boaz Abramson

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

Moses Shayo (Contact Author)

The Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

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