Globalization, Economic Policy and Political Structure

Project Information

GEPPS

Grant agreement ID: 693512

DOI

10.3030/693512

Project closed

EC signature date 20 July 2016

Start date 1 September 2016

End date 28 February 2022

Funded under

• EXCELLENT SCIENCE - European Research Council (ERC)

Total cost

€ 1 080 000,00

EU contribution

€ 1 080 000,00

Coordinated by

Centre de Recerca en Economia Internacional (CREI)
Spain

Periodic Reporting for period 4 - GEPPS (Globalization, Economic Policy and Political Structure)

Reporting period: 2021-03-01 to 2022-02-28

Summary of the context and overall objectives of the project

Globalization is expanding economic borders rapidly. Barriers to trade are now lower than ever and this has led to the creation of many truly global goods and asset markets. And yet globalization is changing political borders only slowly. The second wave of globalization that started after WWII found the world organized into a set of states or centralized jurisdictions that often go beyond cultural borders but that clearly fall short of economic borders. These centralized jurisdictions still hold most of the political and decision-making power.

This growing mismatch between markets and states lowers the quality of economic policymaking. Since constituencies are located inside the state, governments tend to disregard effects of economic policies that are felt beyond the political border. The result is a worsening in policymaking that could seriously mitigate the gains from globalization and even turn them into losses. The goal of this project is to improve our understanding of how this growing mismatch between economic and political borders affects economic policy and political structure. In particular, it focuses on the inefficiencies this mismatch creates and on how should we (“the citizens of the world”) handle them.

The project is organized around two themes. The first one is the role of economic unions in improving economic policy making. The second theme is the border effect, that is, an analysis of whether national governments continue to be an impediment to trade in Europe.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

Up to date, the project has been structured into seven papers. The first four papers deal with the role of economic unions. The first one analyzes the forces that led to the emergence of economic unions in the second half of the XXth century. The second one provides a new theory of how to assign power between the union and its member countries. The third one provides an explanation of why the European union has become less popular in the XXIst. The fourth one provides analysis of alternative fiscal regimes for the union.

The remaining three papers are on the border effect. To produce these papers, we constructed a new database on European regional trade. For the first time ever, we have a complete bilateral trade matrix for European regions. One of the papers provides a detailed description of European regional trade. Another paper estimates border effects and finds that regions in different countries trade only 17.5 percent what they would trade if they were in the same country. Thus, the border effect is still strong in Europe. Finally, a third project uses a quantitative model, calibrated with our data, to assess the impact of border changes in Europe.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The project has been completed. I think that the set of papers developed here advances our knowledge of the role of economic unions, and the presence of border effects in Europe.

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