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

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  • Marianna Belloc
  • Samuel Bowles
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    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 innovators necessary to induce a transition.

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    Bibliographic Info

    Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 126.

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    Length: 42
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:sap:wpaper:wp126

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    Related research

    Keywords: institutions; incomplete contracts; culture; trade integration; factor mobility; globalization.;

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    References

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    Cited by:
    1. Bjørnskov, Christian & Potrafke, Niklas, 2012. "Political ideology and economic freedom across Canadian provinces," Munich Reprints in Economics 20277, University of Munich, Department of Economics.

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