Cross-Cultural Trade and Internal Institutional Stability

IBER - Department of Economics - UC Berkeley Working Paper No. E05-343

34 Pages Posted: 27 Apr 2005 Last revised: 22 Jun 2012

See all articles by Marianna Belloc

Marianna Belloc

Sapienza University of Rome - Department of Economics

Date Written: April 14, 2009

Abstract

Traditional trade theory maintains that international economic integration always yields potential welfare benefits. This result can however be maintained only in a world bereft of its institutional and cultural dimensions. In this paper we show that, once institutional factors are introduced, integration may be detrimental to welfare. Exploiting a game theoretical approach, we consider the integration between two societies that only differ in their institutional structures. Two important results are derived. First, intercommunity integration may trigger the demise of the pre-existent internal arrangements. Second, the collapse of the domestic institutional equilibrium can lead to a loss of welfare for the community as a whole.

Keywords: institutions, cultural beliefs, institutional diversity, economic integration, market development

JEL Classification: F15, F16, O17, P51

Suggested Citation

Belloc, Marianna, Cross-Cultural Trade and Internal Institutional Stability (April 14, 2009). IBER - Department of Economics - UC Berkeley Working Paper No. E05-343, Available at SSRN: https://ssrn.com/abstract=705742 or http://dx.doi.org/10.2139/ssrn.705742

Marianna Belloc (Contact Author)

Sapienza University of Rome - Department of Economics ( email )

Via del Castro Laurenziano 9
Rome, 00161
Italy

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