International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity

44 Pages Posted: 8 Sep 2009

See all articles by Marianna Belloc

Marianna Belloc

Sapienza University of Rome - Department of Economics

Samuel Bowles

Santa Fe Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

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.

Keywords: institutions, incomplete contracts, evolutionary game theory, culture, trade integration, factor mobility, globalization

JEL Classification: C73, D23, F15, F16

Suggested Citation

Belloc, Marianna and Bowles, Samuel, International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity (August 2009). CESifo Working Paper Series No. 2762, Available at SSRN: https://ssrn.com/abstract=1469949

Marianna Belloc (Contact Author)

Sapienza University of Rome - Department of Economics ( email )

Via del Castro Laurenziano 9
Rome, 00161
Italy

Samuel Bowles

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States

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