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Title:International trade, factor mobility and the persistence of cultural-institutional diversity PDF Logo
Authors:Belloc, Marianna
Bowles, Samuel
Issue Date:2009
Series/Report no.:Working Paper, University of Massachusetts, Department of Economics 2009-08
Abstract:Cultural and institutional differences among nations may result in differences in the ratios of marginal costs of goods in autarchy and thus be the basis of specialization and comparative advantage, as long as these differences are not eliminated by trade. We provide an evolutionary model of endogenous preferences and institutions under autarchy, trade and factor mobility in which multiple asymptotically stable cultural-institutional conventions may exist, among which transitions may occur as a result of decentralized and un-coordinated actions of employers or employees. We show that: i) specialization and trade may arise and enhance welfare even when the countries are identical other than their cultural-institutional equilibria; ii) trade liberalization does not lead to convergence, it reinforces the cultural-institutional differences upon which comparative advantage is based and may thus impede even Pareto-improving cultural-institutional transitions; and iii) by contrast, greater mobility of factors of production favors decentralized transitions to a superior cultural-institutional convention by reducing the minimum number of cultural or institutional innovators necessary to induce a transition.
Subjects:institutions
incomplete contracts
evolutionary game theory
culture
trade integration
factor mobility
globalization
JEL:D23
F15
F16
C73
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, University of Massachusetts

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