Factor Endowment versus Productivity Views

• Main Authors: All That, William Easterly
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Subjects: North Atlantic
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.580.3280; http://www.princeton.edu/rpds/seminars/pdfs/easterly_globalization.pdf

Abstract: Neoclassical growth models of trade and factor flows based on differences in factor endowments give clear predictions as to how globalization affects inequality. Models in which productivity differences between countries drive trade and factor flows gave more ambiguous predictions. Unfortunately, productivity differences seem necessary to understand many, though not all, globalization and inequality episodes. The factor endowment predictions help give us insight into how the North Atlantic economy achieved decreasing inequality between countries in the last five decades. They also give us insight into the Great Migration of Europeans from the land-scarce Old World to the land-abundant New World in the late 19th and early 20th century, accompanied by the predicted movements in land rental/wage ratios. The factor endowment view of an earlier movement of Europeans to the colonies of the New World and southern Africa help us understand the origins of different levels of country inequality based on land/labor ratios. However, productivity differences appear to be an important facet of many globalization and inequality episodes. In the Old Globalization era, they seem to be crucial to understand the lack of convergence between North Atlantic economies, the Great Divergence between rich and poor countries in that same era, and the bias of capital flows towards rich countries. In the New Globalization era, productivity differences are important to capture the very different performance of poor country regions in recent decades, the flow