Till localism do us part: cultural identity and the costs of separation

Members of a regional community may derive disutility from interacting with individuals of other regional groups. Such a “preference for similar people”, also known as homophily, favors segregation across communities and possibly leads to political secession. In this paper, we balance the advantage of separation (which favors cultural identity in a homogeneous community) against its economic costs. Indeed, both the prominence of domestic markets when barriers to foreign exchanges are high, and the costs needed to administer a newly-born nation can make secession very costly. We show that, when it occurs a substantial increase in openness to international exchanges –as has actually happened under the common European market- the costs of separation will fall and the bias for sameness will be likely to prevail, leading to secession.