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The World Income Distribution

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  • Daron Acemoglu
  • Jaume Ventura

Abstract

We show that even in the absence of diminishing returns in production and technological spillovers, international trade leads to a stable world income distribution. This is because specialization and trade introduce de facto diminishing returns: countries that accumulate capital faster than average experience declining export prices, depressing the rate of return to capital and discouraging further accumulation. Because of constant returns to capital accumulation from a global perspective, the world growth rate is determined by policies, savings, and technologies, as in endogenous growth models. Because of diminishing returns to capital accumulation at the country level, the cross-sectional behavior of the world economy is similar to that of existing exogenous growth models: cross-country variation in economic policies, savings, and technology translate into crosscountry variation in incomes. The dispersion of the world income distribution is determined by the forces that shape the strength of the terms-of-trade effects— the degree of openness to international trade and the extent of specialization.

Suggested Citation

  • Daron Acemoglu & Jaume Ventura, 2002. "The World Income Distribution," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 659-694.
  • Handle: RePEc:oup:qjecon:v:117:y:2002:i:2:p:659-694.
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    File URL: http://hdl.handle.net/10.1162/003355302753650355
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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