The Economics of Nationalism

Abstract

Nationalism as a relatively new but powerful force has received extensive study in political science and sociology with the view that for better or worse, nationalism provides the ideological foundation for political consensus in a country, based on which policies are made and implemented. However, the study of nationalism has received little scrutiny from economists as an economic rationale behind nationalistic behaviour has remained ambiguous. Building on Lan and Li (2015), this paper tests the economic framework linking nationalism and economic openness with its claim that ceteris paribus, greater economic openness in the form of increased foreign trade leads to falling nationalism within countries. With ever-increasing globalisation characterised by increasing foreign trade and capital openness, its consequences on the changing nature of nationalism is of vital significance. Using World Values Survey data to construct a nationalism index for regions in India and China, the paper employs OLS regression techniques as well as instrumental variables, to show that the relation between nationalism and economic openness is weaker than that shown by Lan and Li. Similarly weaker results are found between nationalism and economic openness using fixed effects estimation on cross country data for over 30 countries showing that greater economic openness has been accompanied by greater nationalism in a majority of nations in the past decade. The paper concludes by highlighting some other factors which might account for this increasing nationalism as well as Show more