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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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000051.

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Date of creation: 27 Apr 2010
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Handle: RePEc:cla:levarc:661465000000000051

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Cited by:
  1. 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.
  2. Spolaore, Enrico & Wacziarg, Romain, 2012. "How Deep Are the Roots of Economic Development?," CEPR Discussion Papers 8998, C.E.P.R. Discussion Papers.
  3. repec:cge:warwcg:40 is not listed on IDEAS
  4. 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).
  5. Erkan Gürpinar, 2013. "Notes on Institutional Complementarities and Organizational Forms," Department of Economics University of Siena 678, Department of Economics, University of Siena.
  6. 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).
  7. Becker, Sascha O. & Boeckh, Katrin & Hainz, Christa & Woessmann, Ludger, 2011. "The Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy," IZA Discussion Papers 5584, Institute for the Study of Labor (IZA).
  8. Bjørnskov, Christian & Potrafke, Niklas, 2012. "Political ideology and economic freedom across Canadian provinces," Munich Reprints in Economics 20277, University of Munich, Department of Economics.
  9. F. Landini, 2012. "The Evolution of Control in the Digital Economy," Economics Department Working Papers 2012-EP03, Department of Economics, Parma University (Italy).
  10. Marianna Belloc & Ugo Pagano, 2008. "Politics-Business Interaction Paths," Working Papers 109, University of Rome La Sapienza, Department of Public Economics.

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