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International Competition and Inequality: A Generalized Ricardian Model

Author

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  • Adolfo Figueroa

    (Departamento de Economía de la PUC del Perú)

Abstract

Why does the gap in real wage rates persist between the First World and the Third World after so many years of increasing globalization? The standard neoclassical trade model predicts that real wage rates will be equalized with international trade, whereas the standard Ricardian trade model does not. Facts are thus consistent with the Ricardian model. However, this model leaves undetermined income distribution. The objective of this paper is to fill this gap by developing a generalized Ricardian model, in which labor productivity levels across countries are endogenous and the initial inequality of countries is the exogenous variable. The model is able to explain the observed country differences in labor productivity levels, real wage rates, and patterns of trade. Thus, the model suggests that the initial inequality of countries plays a significant role in international competition. JEL Classification-JEL: F10, F16, F66

Suggested Citation

  • Adolfo Figueroa, 2014. "International Competition and Inequality: A Generalized Ricardian Model," Documentos de Trabajo / Working Papers 2014-378, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00378
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    References listed on IDEAS

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    1. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank, vol. 10(3), pages 565-591, September.
    2. William Darity & Lewis S. Davis, 2005. "Growth, trade and uneven development," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 29(1), pages 141-170, January.
    3. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank, vol. 10(3), pages 565-591, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International competition; Labor productivity; Real wage rate; initial inequality; income distribution; Ricardian trade model.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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