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The World Income Distribution

  • Daron Acemoglu
  • Jaume Ventura

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. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 117 (2002)
Issue (Month): 2 (May)
Pages: 659-694

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Handle: RePEc:tpr:qjecon:v:117:y:2002:i:2:p:659-694
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  1. N. Gregory Mankiw, 1995. "The Growth of Nations," Harvard Institute of Economic Research Working Papers 1732, Harvard - Institute of Economic Research.
  2. Charles I. Jones, . "On the Evolution of the World Income Distribution," Working Papers 97009, Stanford University, Department of Economics.
  3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  4. Acemoglu, Daron & Zilibotti, Fabrizio, 2000. "Productivity Differences," CEPR Discussion Papers 2498, C.E.P.R. Discussion Papers.
  5. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  6. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
  7. Hummels, David & Levinsohn, James, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 799-836, August.
  8. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
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