International Integration and Social Identity

Boaz Abramson (Stanford)
Moses Shayo (Hebrew University of Jerusalem)

Abstract: This paper offers a first step towards introducing social identity into international economics. We develop a simple framework to study the interaction between identity politics and international integration, allowing identities themselves to be endogenous. Contrary to widespread intuitions, we find that a robust union does not require that all members share a common identity. Nor is a common identity likely to emerge as a result of integration. Furthermore, while national identification in the periphery leads to premature breakup, a common identity can sometimes lead to excessively large unions. The general result is that 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 economic differences are large and although union policies impose significant hardship. We trace the implications of the model for likely entrants and defectors from the EU and the Euro.

Download the paper