Endogenous Ranking and Equilibrium Lorenz Curve Across (ex-ante) Identical Countries
AbstractThis paper considers a model of the world economy with a finite number of ex-ante identical countries and a continuum of tradeable goods. Productivity differences across countries arise endogenously through free entry to the local differentiated producer service sector in each country. It is shown that, in any stable equilibrium, the countries sort themselves into specializing in different sets of tradeable goods and that a strict ranking of countries in income, TFP, and the capital-labor ratio emerge endogenously. The equilibrium Lorenz curve is characterized by a second-order nonlinear difference equation with the two terminal conditions. As the number of countries increases, this equation converges to a differential equation whose unique solution can be solved analytically and depends on a few parameters in a tractable manner. This enables us to show when the equilibrium distribution obeys a power-law and how various forms of globalization affect inequality among countries and to study the welfare effects of trade.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-148.
Date of creation: Aug 2010
Date of revision:
Endogenous Comparative Advantage; Endogenous Inequality; Globalization and Inequality; Dornbusch-Fischer-Samuelson model; Dixit-Stiglitz model of monopolistic competition; Symmetry-Breaking; Lorenz-dominant shifts; Log-submodularity; Power-law distributions;
Other versions of this item:
- Matsuyama, Kiminori, 2010. "Endogenous Ranking and Equilibrium Lorenz Curve Across (ex-ante) Identical Countries," CCES Discussion Paper Series 35, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
- NEP-ALL-2011-02-26 (All new papers)
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