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

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  • Kiminori Matsuyama

Abstract

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.

Suggested Citation

  • Kiminori Matsuyama, 1996. "Why Are There Rich and Poor Countries? Symmetry-Breaking in the World Economy," NBER Working Papers 5697, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5697
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    References listed on IDEAS

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    1. Arvind Panagariya, 1988. "A Theoretical Explanation of Some Stylized Facts of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 509-526.
    2. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 617-650.
    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. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
    7. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    8. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
    9. Prebisch, Raúl, 1950. "The economic development of Latin America and its principal problems," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 29973, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    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. 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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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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