Global Inequality, Investment, and Trade Frictions in Capital Goods

Since 1950 the global Gini coefficient for between-country income inequality has stood at about 55, reflecting a twenty five-fold difference in wealth between the richest and poorest countries. A well-known stylized fact underpinning this feature of the world economy is that the real investment rate of wealthy countries such as Norway and the United States is roughly two to three times that of poor countries such as Mali and Kenya.  Based on this evidence, the literature seeking to understand international inequality has attributed a key role to differences in physical capital intensity.

The early literature attributes low capital intensity to low savings rates, combined with limited international capital mobility.  Low savings rates have been attributed in turn to poor institutions, and policies that result in high effective tax rates on capital income such as high explicit tax rates, high discount rates, and high dependency ratios.  Alternatively, low-saving traps have been attributed to subsistence consumption needs.  This line of reasoning formed the intellectual foundations for the lending work of institutions such as the World Bank.

A more recent strand of the literature assigns a central role to factors that directly determine the cost of capital.  From this perspective, poor countries have low real investment rates because they tax capital goods, erect or endure barriers to trade in capital goods, or grant monopoly rights to domestic capital goods producers.  Recent contributions to this literature have been organized around an Eaton Kortum (EK) model wherein capital can grow both through domestic and imported capital formation.  Within this framework, trade frictions have been identified as quantitatively important in understanding why standards of living and measured total factor productivity between the richest and poorest countries differ by so much.

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Eaton, J., and S. Kortum, (2001); “Trade in Capital Goods.European Economic Review 45:1195–1235. [Working paper version]

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Hsieh, C.-T., (2001); “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence: Comment.” In NBER Macroeconomics Annual 2000, Volume 15, NBER Chapters. National Bureau of Economic Research, Inc, 325–330.

Hsieh, C.-T. and P.J. Klenow, (2007); “Relative Prices and Relative Prosperity.American Economic Review 97 (3):562–585. [Working paper version]

Rodriguez, Francisco and Dani Rodrik. 2001. “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence.” In NBER Macroeconomics Annual 2000, Volume 15, NBER Chapters. National Bureau of Economic Research, Inc, 261–325.

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New Working Papers – August 2015

The following working papers have recently been added to our working papers page.

Dreher, Axel, Andreas Fuchs, Roland Hodler, Bradley C. Parks, Paul A. Raschky and Michael J. Tierney (2015) “Aid on Demand: African Leaders and the Geography of China’s Foreign Assistance”  

Hessami, Zohal, Claudio Thum and Silke Uebelmesser (2012) “A Political Economy Explanation for In‐kind Redistribution: The Interplay of Corruption and Democracy

Krishna, Kala (2014)“Wheat or Strawberries? Intermediated Trade with Limited Contracting

Krishna, Kala, Sergey Lychagin and Veronica Frisancho Robles (2015) “Retaking in High Stakes Exams: Is Less More?

Lake, James (2015) “Why don’t more countries form Customs Unions instead of Free Trade Agreements? The role of flexibility

Lake, James and Maia Linask (2015) “Domestic political competition and pro-cyclical import protection

Magda, Iga , David Marsden and Simone Moriconi (2015) Lower coverage but stronger unions? Institutional changes and union wage premia in central Europe

8th FIW Research Conference ‘International Economics’

December 3-4, 2015 – WIFO (Austrian Institute of Economic Research)

Venue: WIFO (Austrian Institute of Economic Research)Arsenal, Object 20, 1030 Vienna

Keynote Lecture: Prof. Dr. Franz Hubert (Humboldt-Unviversity Berlin)

The Research Centre International Economics – FIW announces its 8th Research Conference that is jointly organized with the Institute for East and Southeast European Studies (IOS) Regensburg, the Ifo Institute, the University of Ljubljana and the Hungarian Academy of Sciences (MTA KRTK) and invites the submission of papers to be presented at the conference. The main objective of the conference is to provide a platform for economists working in the field of ‘International Economics’ in Austria and its neighbouring countries to present recent research.

Papers from Ph.D. students, post-graduate students, young faculty members and young researchers in similar positions are particularly welcome as the conference aims to support and encourage young economists by providing an opportunity to present their work. Participants will have the opportunity to interact in a dynamic and open atmosphere and to discuss their papers/research ideas with experts in the field of ‘International Economics’.


The broad topic of the conference is ‘International Economics’. This includes, inter alia, the areas of Trade, International Factor Movements, Economic Integration, Trade Policy, International Trade Organizations, Economic Growth of Open Economies, Multinational Firms, International Macroeconomics and other related fields.

Deadline for Submission: September 14, 2015

Conference Website

ZEW Workshop on the Development and Consequences of Atypical Employment

Atypical employment has been of increasing importance in most developed countries. It comprises employment types such as fixed-term contracts, part-time jobs and marginal employment, as well as contract work and temporary agency work, which play a decisive role in the institutional setting of modern labour markets. It has been argued that atypical employment can be beneficial in creating more flexibility for firms and in helping to overcome crises without massive employment losses. Little is known, however, about the consequences of atypical employment on the individual level. On the one hand, concerns have recently been growing that atypical employment positions are only second-best options for workers, compared to regular employment. Atypical positions are associated with detrimental effects on wage growth, on employment prospects and on individual well-being in terms of satisfaction and health. On the other hand, the provision of atypical employment positions might be a response to the demand for flexible work arrangements of specific types of workers in dynamic labour markets. Empirical and theoretical work on the development and consequences of atypical employment can therefore provide valuable evidence for policy-makers regarding the regulation of labour market institutions.

The aim of the workshop is to bring together international researchers in order to present and discuss recent empirical and theoretical contributions regarding the development and consequences of atypical employment.

Topics of interest include (but are not limited to):

  • Trends in atypical employment across different types of worker and countries
  • Quality of atypical employment
  • Dynamic employment and wage effects
  • State dependence in the low-wage sector related to atypical employment
  • Self-employment as an atypical employment type
  • Life-cycle effects of atypical employment
  • Individual well-being and atypical employment
  • Atypical employment induced by new technologies
  • Labour supply and hours constraints
  • Atypical employment in the context of household and fertility decisions
  • Investigation of the role of firms using linked employer-employee data
  • Effects of policy reforms on the consequences of atypical employment
  • Atypical employment as a stepping stone to regular employment
  • Institutional relationship between unions, minimum wages and atypical employment
  • Relationship between unemployment and atypical employment in a job search context

The deadline for submission of full papers or extended abstracts is September 27 2015.

Workshop dates: December 2-3 2015

Location of the workshop: ZEW, L 7,1 D-68161 Mannheim

Workshop Website