To explain cross-country differences in economic performance, the economics of coordination failures typically portrays each country in a closed economy model with multiple equilibria and then argues that the poor countries are in an equilibrium inferior to those achieved by the rich. This approach cannot tell us anything about the degree of inequality in the world economy. A more satisfactory approach would be to build a world economy model and show why it has to be separated into the rich and the poor regions, i.e., to demonstrate the co-existence of the rich and poor as an inevitable aspect of the world trading system. In the present model, the symmetry-breaking of the world economy into the rich and the poor occurs because international trade causes agglomeration of different economic activities in different regions of the world. International trade thus creates a kind of pecking order among nations, and as in a game of musical chairs, some countries must be excluded from being rich.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5697.
Length: Date of creation: Aug 1996 Date of revision: Publication status: published as Journal of Japanese and International Economies, December 1996. Handle: RePEc:nbr:nberwo:5697
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Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Akihiko Matsui & Kiminori Matsuyama, 1990.
"An Approach to Equilibrium Selection,"
Discussion Papers
970, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Other versions:
Akihiko Matsui & Kiminori Matsuyama, 1991.
"An Approach to Equilibrium Selection,"
Discussion Papers
1065, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Joseph F. Francois & Douglas Nelson, 2002.
"A Geometry Of Specialisation,"
Economic Journal,
Royal Economic Society, vol. 112(481), pages 649-678, July.
[Downloadable!] (restricted)
Kiminori Matsuyama, 1999.
"Geography of the World Economy,"
Discussion Papers
1239, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]