International Integration and Social Identity

Abstract

We study the interplay between identity politics and international integration, taking seriously accumulated research on social identity in economics and psychology. We find that, in general, a union is more fragile when periphery countries have higher status than the core. Low-status countries are less likely to secede, even when between-country differences 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. Augmenting the standard model of integration with social identity helps better understand empirical patterns in decisions to leave or to join the European Union and the Eurozone.

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

JEL Classification: F02, E71, D72, Z1