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Endogenous Ranking and Equilibrium Lorenz Curve Across (ex ante) Identical Countries
Author(s) -
Matsuyama Kiminori
Publication year - 2013
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta10107
Subject(s) - economics , lorenz curve , ranking (information retrieval) , welfare , distribution (mathematics) , econometrics , productivity , per capita , per capita income , capital (architecture) , microeconomics , inequality , gini coefficient , macroeconomics , mathematics , economic inequality , mathematical analysis , population , demography , machine learning , sociology , computer science , market economy , history , archaeology
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.