Some of the results here have previously been circulated as a memo entitled “Emergent International Economic Order.” I am grateful to conference and seminar participants at Bocconi/IGIER, Bologna, Chicago, Columbia, CREI/Pompeu Fabra, EIEF, Harvard, Hitotsubashi COE Conference on International Trade and FDI 2009, Keio/GSEC, Kyoto, LUISS, three different groups of 2010 NBER Summer Institute, NYU, Princeton, Tokyo, and Urbino meeting of COST Action IS1104 for their feedback. Special thanks go to two formal discussants, Arnaud Costinot and Kerem Cosar, as well as Xavier Gabaix and Yannis Ioannides for their written comments. I also benefited greatly from the discussion with Hiroshi Matano on the approximation method used in the paper. I would also like to thank for the hospitality of International Economics Section at Princeton, where a major revision was done, and of Bank of Japan Institute of Monetary and Economic Studies, where the final version was prepared. Detailed comments and suggestions by the editor and the referees have greatly improved the paper.
Endogenous Ranking and Equilibrium Lorenz Curve Across (ex ante) Identical Countries
Article first published online: 18 SEP 2013
© 2013 The Econometric Society
Volume 81, Issue 5, pages 2009–2031, September 2013
How to Cite
Matsuyama, K. (2013), Endogenous Ranking and Equilibrium Lorenz Curve Across (ex ante) Identical Countries. Econometrica, 81: 2009–2031. doi: 10.3982/ECTA10107
- Issue published online: 18 SEP 2013
- Article first published online: 18 SEP 2013
- Manuscript received June, 2011; final revision received January, 2013.
- Endogenous comparative advantage;
- endogenous dispersion;
- globalization and inequality;
- Lorenz-dominant shifts;
This paper proposes a symmetry-breaking model of trade with a (large but) finite number of (ex ante) identical countries and a continuum of tradeable goods, which differ in their dependence on local differentiated producer services. Productivity differences across countries arise endogenously through free entry to the local service sector in each country. In any stable equilibrium, the countries sort themselves into specializing in different sets of tradeable goods, and a strict ranking of countries in per capita income, TFP, and the capital-labor ratio emerges endogenously. Furthermore, the distribution of country shares, the Lorenz curve, is unique and analytically solvable in the limit, as the number of countries grows unbounded. Using this limit as an approximation allows us to study what determines the shape of distribution, to perform various comparative statics, and to evaluate the welfare effects of trade.