Is regionalism better for economic integration? : nations, regions, and risk sharing

Our analysis yields some conclusions about the political role of regions in the formation of supranational economic areas, which turns out to be quite di®erent from the role of nations. The claim that regions have more incentives than nations to attain a ¯scal agreement implying full economic integration is likely to be correct when nations are economic stable arrangements, i.e. when the rich region of a nation is not \exploited" by the poor region. When, on the other hand, it is not on the interest of a rich region to be part of a nation, attempts to achieve full economic integration among a group of nations is more likely to be successful if nations, instead of regions, are the decision makers