Growth, inequality and integration: a political economy analysis

The issue of political integration between two countries (more generally two political constituencies) for economic reasons is studied within the context of economic growth. We consider two countries which di¤er both in terms of average endowment and inequality. The decision to integrate or not is taken by the two national median voters. We establish the net gain for any individual in any country derived from integration and o¤er two alternative decompositions of this gain. It is then proven that even though integration generates gains for both countries through an endogenous growth related to size, it may be in the interest of either median voter not to vote for integration given the transformation in the inequality schedule implied by integration. Surprisingly, even the poorer median voter may vote against integration.