The world income distribution
By: Daron Acemoglu [and] Jaume Ventura
Contributors: Ventura, Jaume; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 01-01; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 01-01.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2000
Place of publication: Cambridge, MA
Language: eng
Number of pages: 37
Description: We show that even in the absence of diminishing returns in production and technological spillovers, international trade leads to a stable world income distribution. This is because specialization and trade introduce de facto diminishing returns: Countries that accumulate capital faster than average experience declining export prices, depressing the rate of return to capital and discouraging further accumulation. Because of constant returns to capital accumulation at the country level, the cross-sectional behavior of the world economy is similar to that of existing exogenous growth models: Cross-country variation in economic policies, savings, and technology translate into cross-country variation in incomes, and country dynamics exhibit conditional convergence as in the Solow-Ramsey model. The dispersion of the world income distribution is determined by the forces that shape the strength of the terms of trade-effects--the degree of openness to international trade and the extent of specialization. Finally, we provide evidence that those countries accumulating faster experience a worsening in their terms of trade. Our estimates imply that, all else equal, a 1 percentage point faster growth is associated with approximately a 0.7 percentage point deline in the terms of trade. Keywords: Cross-Country Income Differences; Endogenous Growth; International Trade;Specialization; Terms of Trade Effects.
Notes: Title from cover.

"December 2000." "December 22, 2000"--Abstract.

Includes bibliographical references (p. 33-36).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.