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Zipf's Law for Integrated Economies

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Author Info
Harry P. Bowen () (Vlerick Leuven Gent Management School)
Haris Munandar () (Faculty of Economics, Erasmus Universiteit Rotterdam)
Jean-Marie Viaene () (Faculty of Economics, Erasmus Universiteit Rotterdam)

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Abstract

We first demonstrate that, within a fully integrated economy (FIE) in which there is free mobility of goods and factors, each FIE member's share of total FIE output will equal its shares of the total FIE stock of each productive factor. This equal-share property implies that, if economic policies are also largely harmonized across FIE members, the growth in any member's output and factor shares can be viewed as a random event. This then implies that the limit distribution of output and factor shares across FIE members will conform to a rank-share distribution that exhibits Zipf's law. This result means that growth models of FIE members must embody the assumption of homogeneity of random growth processes across members. Given its importance for our understanding of underlying growth mechanisms for such members, we empirically examine for evidence of Zipf's law for the distribution of output and factor shares of two (presumably) integrated economies: the 51 US states and 14 countries of the European Union (EU). Our findings support Zipf's law for US states and indicate convergence towards this law among EU countries.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-048/2.

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Date of creation: 17 May 2005
Date of revision: 06 Feb 2007
Handle: RePEc:dgr:uvatin:20050048

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Related research
Keywords: Distribution of production; Gibrat's law; integrated economy; rank-share distribution; Zipf's law;

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Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
F15 - International Economics - - Trade - - - Economic Integration
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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