I finally submitted my PhD last week. I've posted links to two of the chapters before:
# A balance of questions: what can we ask of climate change economics?
# The interaction of scale economies and energy quality
and the third chapter is now available too:
# Measuring costs and benefits of independence.
This is a joint paper with my Catalan co-author, Professor Sevi Rodriguez Mora, and the country/region/entity (all loaded terms in this debate) we analyse is Catalonia. In this paper we model Catalonian independence by assuming its apparent economic integration, and trade links, with the rest of Spain, become like those of Portugal with Spain. This is done in a model in which trade is good, and so a reduction in trade is costly, in order to generate one specific cost of independence. This cost is set against the fiscal transfer that Catalonia pays to the rest of Spain, and we can compare.
Sevi has publicised this work in Catalonia and in Spain: Portugal, Spain & Catalonia: friends for life [which then provoked a response from Havard economist Pol Antras: The nasty (but erroneous) arithmetic of independence to which Sevi again responded: The unpleasant independence logic]. All interesting stuff (so long as you can bear google translate), and it's easy for me to be an impartial academic: it's not my country. I do want to extend my research to Scotland though, and I plan to discuss this in several posts following this one, which introduces this research agenda.
I have said in the past, and Prof John Kay said pretty much the same on Good Morning Scotland on 9th March, that the short run position for Scotland is basically neutral (oil
revenues essentially pay for the larger public sector and lower,
non-oil, tax base) and so the interesting questions are to do with the
long run. The Catalonia paper outlines A cost (and in Catalonia's case, A benefit), of independence. I believe that there are gains from trade, and we can see in the data that trade between locations within a nation state is higher than trade between locations in independent countries. Therefore, I do think that our work captures an important mechanism: any frictions that cause the UK single market to become less open will be associated with productivity falls. I am happy to proclaim that this is a cost associated with independence.
The model we use is not capable of generating any benefits of independence (other than fiscal transfers which, whilst significant for Catalonia, or not significant [in the short run] for Scotland). Taken to its logical conclusion, using trade models to study optimal economic integration would lead us to recommend one world government, since there can only be economic costs associated with less than full integration. There are some issues (climate change springs to mind) for which one world government is appropriate, but I do not believe (and apparently many vociferous opponents of Scottish independence also do not believe) that a single world polity is the appropriate model for general governance. Given this, what is the optimal scale of government and the optimal size of countries?
This is a general question, and to apply to a specific case like the question before us in the 2014 referendum will involve heavy qualification, but both the general question and its specific application to Scotland are fascinating. I have in the past signed the Yes Scotland Declaration and I'm instinctively sympathetic to the Yes campaign - but for political rather that economic reasons (*). The research question is an economic one: do we have any reason to believe that an independent Scotland would lead to improved factor allocations, improved factor accumulation or improved aggregate output, relative to a Scotland governed within the UK framework? The first mechanism considered, trade impacts, suggests (and provides a framework to quantify) a negative contribution to output. I will outline other mechanisms for research in follow up posts.
Finally, I'd like to link to this post from Robin Hansen: Ask Questions that Matter on academic research. Hopefully I'm asking a question that I want to know the answer to rather than a question with an answer that I want to promote. I want to define my "focus in terms of a question, rather
than an answer, and ... bother to think about what questions actually
(*) Read "distribution of income" rather than "level of income".