International Competition and Inequality: A Generalized Ricardian Model

Adolfo Figueroa

No 2014-378, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: Why does the gap in real wage rates persist between the First World and the Third World after so many years of increasing globalization? The standard neoclassical trade model predicts that real wage rates will be equalized with international trade, whereas the standard Ricardian trade model does not. Facts are thus consistent with the Ricardian model. However, this model leaves undetermined income distribution. The objective of this paper is to fill this gap by developing a generalized Ricardian model, in which labor productivity levels across countries are endogenous and the initial inequality of countries is the exogenous variable. The model is able to explain the observed country differences in labor productivity levels, real wage rates, and patterns of trade. Thus, the model suggests that the initial inequality of countries plays a significant role in international competition. JEL Classification-JEL: F10, F16, F66

Keywords: International competition; Labor productivity; Real wage rate; initial inequality; income distribution; Ricardian trade model. (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014
New Economics Papers: this item is included in nep-gro and nep-int
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