DP5202 Borders and Growth

Author(s): Enrico Spolaore , Romain Wacziarg

Publication Date: August 2005

Keyword(s): economic integration , economic growth , political unions

JEL(s): F1 , O5

Programme Areas: Institutions and Economic Performance , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5202.asp

This paper presents a framework to understand and measure the effects of political borders on economic growth and per capita income levels. In our model, political integration between two countries results in a positive country size effect and a negative effect through reduced openness vis-à-vis the rest of the world. Additional effects stem from possible changes in other growth determinants, besides country size and openness, when countries are merged. We estimate the growth effects that would have resulted from the hypothetical removal of national borders between pairs of adjacent countries under various scenarios. We identify country pairs where political integration would have been mutually beneficial. We find that full political integration would have slightly reduced an average country's growth rate, while most countries would benefit from a more limited form of merger, involving higher economic integration with their neighbours.