On the individual optimality of economic integration

• 成果类型: Article
• 署名作者: Castro, Rui; Koumtingue, Nelnan
• 署名单位: Universite de Montreal; Universite de Montreal; World Trade Organization
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2014.08.001
• 发表日期: 2014
• 页码: 115-135
• 关键词: Incomplete markets; endogenous borrowing constraints; risk sharing; Economic integration

摘要

Which countries find it optimal to form an economic union? We emphasize the risk-sharing benefits of economic integration. Consider an endowment world economy model, where international financial markets are incomplete and contracts not enforceable. A union solves both frictions among member countries. We uncover conditions on initial incomes and net foreign assets of potential union members such that forming a union is welfare-improving over standing alone in the world economy. Consistently with evidence on economic integration, unions in our model occur (i) relatively infrequently, and (ii) emerge more likely among homogeneous countries, and (iii) rich countries. Crown Copyright (C) 2014 Published by Elsevier B.V. All rights reserved.