Dynamics of economic unions: an agent-based model to investigate the economic and social drivers of withdrawals

TL;DR

This paper introduces an agent-based model to analyze the social and economic factors influencing countries' decisions to withdraw from economic unions, highlighting the roles of taxes, heterogeneity, and wealth inequality.

Contribution

It presents a novel agent-based simulation framework to explore the complex dynamics and individual causes behind union withdrawals, inspired by Brexit.

Findings

Union and local taxes increase withdrawal likelihood

Customs fees promote union cohesion

Wealth inequality and country performance are key withdrawal drivers

Abstract

Economic unions are international agreements oriented to increase economic efficiency and establishing political and cultural ties between the member countries. Becoming a member of an existing union usually requires the approval of both the candidate and members, while leaving it may require only the unilateral will of the exiting country. There are many examples of accession of states to previously consolidated economic unions, and a recent example of leaving is the withdrawal of the United Kingdom from the European Union. Motivated by the Brexit process, in this paper we propose an agent-based model to study the determinant factors driving withdrawals from an economic union. We show that both Union and local taxes promote the exits, whereas customs fees out of the Union boost cohesion. Furthermore, heterogeneity in both business conditions and wealth distribution promotes withdrawals, while countries' size diversity does not have a significant effect on them. We also deep into the individual causes that lead to dissatisfaction and, ultimately, to exits. We found that, for low Union taxes, the wealth inequality within the country is the leading cause of anti-Union opinion spreading. Conversely, for high Union taxes, the country's performance turns out to be the main driving force, resulting in a risk of wealthier countries leaving the Union. These findings will be helpful for the design of economic policies and effective informative campaigns.