Essays on interregional and international political economics

University dissertation from Stockholm : Institute for International Economic Studies, Stockholm University

Abstract: This thesis consists of three independent papers, summarized as follows. In "Politics in Separating Regions: Delegation when Decisions are Taken in Referenda", I study the incentives in regional politics when citizens face a referendum on secession. I find that the median voter will appoint a regional politician with greater preferences for independence, because the latter can bias the information about the economic consequences of separation, such that the median voter will require a larger transfer from the rest of the country to abstain from separation. The general idea that a player can increase his bargaining power by appointing an expert more sceptical to co-operation is labeled "strategic delegation of information acquisition", and is new to the literature."Incentives for Secession in the Presence of Mobile Ethnic Groups" presents a model on secessions and nationalism, with special emphasis on the role of mobile ethnic minorities. Individuals trade off political benefits of homogeneity against economic costs from increasing returns to scale in production, when choosing whether to separate. The main findings are: i) Mobility decreases the political motivation for independence, because increased competition for labour forces the ethnic majorities in the separating countries to accommodate their policy. ii) Mobility influences the benefits of separation differently, depending on the motive behind separation. iii) Increased mobility makes a more extreme nationalism compatible with a maintained union.In "Foreign Aid: an Instrument for Fighting Poverty or Communism?", we test the hypothesis that the sizeable reduction in aggregate aid levels in the 1990’s was due to the end of the Cold war. We use a dynamic econometric specification to test this hypothesis on a panel of 17 donor countries, spanning the years 1970-1997. We find aid to be positively related to military expenditures in the former Eastern bloc, and that the substantial drop in these expenditures can indeed explain the reduction in aid in the 1990’s. Country specific regressions show that aid levels in France, Japan and the USA are most affected by changes in the military expenditures. We also find that aid has become less strategically motivated in the 1990’s.

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