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Endogenous Ranking and Equilibrium Lorenz Curve Across (ex-ante) Identical Countries

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  • Matsuyama, Kiminori

Abstract

This paper considers a model of the world economy with a finite number of ex-ante identical countries and a continuum of tradeable goods. Productivity differences across countries arise endogenously through free entry to the local differentiated producer service sector in each country. It is shown that, in any stable equilibrium, the countries sort themselves into specializing in different sets of tradeable goods and that a strict ranking of countries in income, TFP, and the capital-labor ratio emerge endogenously. The equilibrium Lorenz curve is characterized by a second-order nonlinear difference equation with the two terminal conditions. As the number of countries increases, this equation converges to a differential equation whose unique solution can be solved analytically and depends on a few parameters in a tractable manner. This enables us to show when the equilibrium distribution obeys a power-law and how various forms of globalization affect inequality among countries and to study the welfare effects of trade.

Suggested Citation

  • Matsuyama, Kiminori, 2010. "Endogenous Ranking and Equilibrium Lorenz Curve Across (ex-ante) Identical Countries," CCES Discussion Paper Series 35, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  • Handle: RePEc:hit:ccesdp:35
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    Cited by:

    1. repec:eee:reecon:v:71:y:2017:i:4:p:740-758 is not listed on IDEAS
    2. Matsuyama, Kiminori, 2017. "Geographical advantage: Home market effect in a multi-region world," Research in Economics, Elsevier, vol. 71(4), pages 740-758.
    3. Nagamachi, Kohei, 2015. "A Simple Model of Functional Specialization of Cities," MPRA Paper 61497, University Library of Munich, Germany.
    4. Robert C. Feenstra, 2017. "Statistics to Measure Offshoring and its Impact," NBER Working Papers 23067, National Bureau of Economic Research, Inc.
    5. Matsuyama, Kiminori, 2015. "The home market effect and patterns of trade between rich and poor countries," LSE Research Online Documents on Economics 86292, London School of Economics and Political Science, LSE Library.
    6. Pflüger, Michael P. & Tabuchi, Takatoshi, 2016. "Comparative Advantage and Agglomeration of Economic Activity," IZA Discussion Papers 10273, Institute for the Study of Labor (IZA).
    7. Akamatsu, Takashi & Fujishima, Shota & Takayama, Yuki, 2014. "On Stable Equilibria in Discrete-Space Social Interaction Models," MPRA Paper 55938, University Library of Munich, Germany.

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