General Equilibrium Simulations on the Income Distribution

We begin with examining the variation of income distributions after trade starts from the viewpoint of globalism. Specifying parameters in the Heckscher–Ohlin model randomly, we compute the probability of declining international income inequality to be 63%, while that of rising domestic income inequality to be 62%. Extending the model to the three-country-three-factor model, we compute the probability of declining international income inequality to be 70%, while the one of rising domestic income inequality to be 70%. Subsequently, from the viewpoint of innovation, we construct the Pareto-type or log-normal type income distribution for a society. The model is constructed from the idea of dynamic population growth and successive commodity invention. It is shown that when each sector producing the newly invented commodity is possessed solely by the workers specific to that sector, the income distribution tends to follow that of the Pareto-type; when each sector is possessed by the whole workers, it tends to follow that of normal type; and finally when each sector is partly possessed by part of the workers specific to that sector, it tends to follow that of the log-normal type. We conclude that the econometric observations are compatible with the pure economic theory.