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Why Are There Rich and Poor Countries? Symmetry-Breaking in the World Economy

  • Kiminori Matsuyama

To explain cross-country differences in economic performance, the economics of coordination failures typically portrays each country in a closed economy model with multiple equilibria and then argues that the poor countries are in an equilibrium inferior to those achieved by the rich. This approach cannot tell us anything about the degree of inequality in the world economy. A more satisfactory approach would be to build a world economy model and show why it has to be separated into the rich and the poor regions, i.e., to demonstrate the co-existence of the rich and poor as an inevitable aspect of the world trading system. In the present model, the symmetry-breaking of the world economy into the rich and the poor occurs because international trade causes agglomeration of different economic activities in different regions of the world. International trade thus creates a kind of pecking order among nations, and as in a game of musical chairs, some countries must be excluded from being rich.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5697.

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Date of creation: Aug 1996
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Publication status: published as Matsuyama, Kiminori, 1996. "Why Are There Rich and Poor Countries? Symmetry-Breaking in the World Economy," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 419-439, December.
Handle: RePEc:nbr:nberwo:5697
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  1. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  2. Antonio Ciccone & Kiminori Matsuyama, 1993. "Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development," NBER Working Papers 4363, National Bureau of Economic Research, Inc.
  3. Matsui Akihiko & Matsuyama Kiminori, 1995. "An Approach to Equilibrium Selection," Journal of Economic Theory, Elsevier, vol. 65(2), pages 415-434, April.
  4. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  5. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
  6. Panagariya, Arvind, 1988. "A Theoretical Explanation of Some Stylized Facts of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 509-26, August.
  7. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  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.
  9. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-86, June.
  10. Matsuyama, Kiminori, 1992. "The market size, entrepreneurship, and the big push," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 347-364, December.
  11. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
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