The World Income Distribution

41 Pages Posted: 19 Jan 2001

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Jaume Ventura

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2000

Abstract

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

JEL Classification: F43, O40, O41, F12

Suggested Citation

Acemoglu, Daron and Ventura, Jaume, The World Income Distribution (December 2000). MIT Economics Working Paper No. 01-01. Available at SSRN: https://ssrn.com/abstract=254707 or http://dx.doi.org/10.2139/ssrn.254707

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Jaume Ventura

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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