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

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  • Marianna Belloc

    ()
    (Sapienza University of Rome)

  • Samuel Bowles

    ()
    (Santa Fe Institute, University of Siena, and University of Massachusetts Amherst)

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. JEL Categories: D23, F15, F16, C73

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2009-08.

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Date of creation: Aug 2009
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Handle: RePEc:ums:papers:2009-08

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Keywords: institutions; incomplete contracts; evolutionary game theory; culture; trade integration; factor mobility; globalization;

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Cited by:
  1. 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).
  2. 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).
  3. Algan, Yann & Cahuc, Pierre, 2013. "Trust, Growth and Well-Being: New Evidence and Policy Implications," CEPR Discussion Papers 9548, C.E.P.R. Discussion Papers.
  4. Enrico Spolaore & Romain Wacziarg, 2012. "How Deep are the Roots of Economic Development?," CESifo Working Paper Series 3837, CESifo Group Munich.
  5. Christian Bj�rnskov & Niklas Potrafke, 2012. "Political Ideology and Economic Freedom Across Canadian Provinces," Eastern Economic Journal, Palgrave Macmillan, vol. 38(2), pages 143-166.
  6. F. Landini, 2012. "The Evolution of Control in the Digital Economy," Economics Department Working Papers 2012-EP03, Department of Economics, Parma University (Italy).
  7. Marianna Belloc & Ugo Pagano, 2009. "Politics-Business Interaction Paths," CESifo Working Paper Series 2883, CESifo Group Munich.
  8. 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).
  9. Erkan Gürpinar, 2013. "Notes on Institutional Complementarities and Organizational Forms," Department of Economics University of Siena 678, Department of Economics, University of Siena.
  10. repec:cge:warwcg:40 is not listed on IDEAS

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