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International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity

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  • Marianna Belloc
  • Samuel Bowles

Abstract

Cultural and institutional differences among nations may result in differences in the ratios of marginal costs of goods in autarchy and thus be the basis of specialization and comparative advantage, as long as these differences are not eliminated by trade. We provide an evolutionary model of endogenous preferences and institutions under autarchy, trade and factor mobility in which multiple asymptotically stable cultural-institutional conventions may exist, among which transitions may occur as a result of decentralized and un-coordinated actions of employers or employees. We show that: i) specialization and trade may arise and enhance welfare even when the countries are identical other than their cultural-institutional equilibria; ii) trade liberalization does not lead to convergence, it reinforces the cultural-institutional differences upon which comparative advantage is based and may thus impede even Pareto-improving cultural-institutional transitions; and iii) by contrast, greater mobility of factors of production favors decentralized transitions to a superior cultural-institutional convention by reducing the minimum number of cultural or institutional innovators necessary to induce a transition.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2762.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2762

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Keywords: institutions; incomplete contracts; evolutionary game theory; culture; trade integration; factor mobility; globalization;

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Cited by:
  1. Spolaore, Enrico & Wacziarg, Romain, 2012. "How Deep Are the Roots of Economic Development?," CEPR Discussion Papers 8998, C.E.P.R. Discussion Papers.
  2. Sascha O. Becker & Katrin Boeckh & Christa Hainz & Ludger Woessmann, 2011. "The Empire is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy," CESifo Working Paper Series 3392, CESifo Group Munich.
  3. Marianna Belloc & Ugo Pagano, 2009. "Politics-Business Interaction Paths," CESifo Working Paper Series 2883, CESifo Group Munich.
  4. Christian Bj�rnskov & Niklas Potrafke, 2012. "Political Ideology and Economic Freedom Across Canadian Provinces," Eastern Economic Journal, Palgrave Macmillan, vol. 38(2), pages 143-166.
  5. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120 Elsevier.
  6. Fabio Landini, 2012. "The Evolution of Control in the Digital Economy," Department of Economics University of Siena 655, Department of Economics, University of Siena.
  7. Christopher-Johannes Schild & Matthias Wrede, 2010. "Cultural Identity, Mobility, and Decentralization," MAGKS Papers on Economics 201016, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  8. repec:cge:warwcg:40 is not listed on IDEAS
  9. Schild, Christopher-Johannes, 2013. "Generalized trust and regional innovation activity," IWQW Discussion Paper Series 02/2012, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  10. Erkan Gürpinar, 2013. "Notes on Institutional Complementarities and Organizational Forms," Department of Economics University of Siena 678, Department of Economics, University of Siena.

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