Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: The present paper documents that political stability is positively associated with the extent of domestic trade. In explaining this reg- ularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market ex- change, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the prefer- ences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that en- hance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non- cooperative under self-su¢ ciency, the political decision making process becomes cooperative in the market economy, as the welfare of individ- uals will be mutually interdependent due to the exchange of goods.

Keywords: Political cohesion; Economic growth

JEL-codes: O41; P16

43 pages, December 14, 2007

Full text files

8481 HTML file 

Download statistics

• University of Gothenburg, Department of Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Jessica Oscarsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:gunwpe:0280This page generated on 2024-11-14 18:33:26.