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International Integration and Social Identity: Theory and Evidence

Final Report Summary - INTEGRATION (International Integration and Social Identity: Theory and Evidence)

The project studies the interplay between identity politics and international integration when identities are endogenous. Contrary to widespread perceptions, we find that a union is not necessarily more robust when all members share a common identity. Nor is mutual solidarity likely to emerge as a consequence of integration. In general, a union is more fragile when periphery countries have high ex-ante status. Low-status countries are less likely to secede, even when between-country differences are large and although equilibrium union policies impose significant economic hardship. This helps understand empirical important patterns in the decisions to leave or to join the European Union and the Eurozone.

A second project grew out of an experiment we conducted in the UK can be summarized as follows.

How does engagement with markets affect social-economic values and political preferences? A long line of thinkers has debated the nature and direction of such effects, but claims are difficult to assess empirically because market engagement is endogenous. We conduct a large field experiment that helps evaluate the impact of financial markets, which have grown dramatically in recent decades. Participants from a national sample in England received substantial sums they could invest over a six-week period. We assigned them into several treatments designed to distinguish between different theoretical channels of influence. Results show that investment in stocks led to a more right-leaning outlook on issues such as merit and deservingness, personal responsibility and equality. Subjects also shifted to the right on policy questions. These results appear to be driven by growing familiarity with, and decreasing distrust of markets. The spread of financial markets thus has important and under-appreciated political ramifications.