Social Capital and Regional Integration
Antagonistic neighboring countries may benefit from a regional integration agreement which raises trade and therefore trust between them, raises each country's stake in the other's welfare, and thus raises security. It is shown that in such cases, the optimal external tariff falls over time following deeper forms of integration (Schiff 1998).
Contrary to the classical result that the social and economic welfare impact of regional integration is ambiguous, regional integration can be an optimal instrument for improving the standard of living when there are security problems between neighboring countries (Schiff 1998).