3.4 History, Aggregates and the Interactive World
Theories such as these might yield a useful model for the interactive world economy.
Take, for instance, the notion of aspirations. Just as domestic aspirations drive the
dynamics of accumulation within countries, there is a role, too, for national aspirations,
driven by inter-country disparities in consumption and wealth, and its effect on the
international distribution of income. Even the simplest growth framework that exhibits
the usual features of convexity in its technology and budget constraints could give rise
in the end to a world distribution that is bipolar. Countries in the middle of that
distribution would tend to accumulate faster, be more dynamic and take more risks as
they see the possibility of full catch-up within a generation or less. One might expect
the greatest degree of “country mobility” in this range. In contrast, societies that are
far away from the economic frontier may see economic growth as too limited and too
long-term an instrument, leading to a failure, as it were, of “international aspirations”.
Groups within these societies may well resort to other methods of potential economic
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gain, such as rent-seeking or conflict. (The aggregate impact of such activities would
reinforce the slide, of course.)
Of course, an entirely mechanical transplantation of the aspirations model to an international
context isn’t a good idea. Countries are not individual units: a more complete
theory must take into account the aspirations of various groups in the different countries,
and the domestic and international components that drive such aspirations.
Next, consider the role of markets. Once again, tentatively view each country as a single
economic agent in the framework of Section 3.3. Now the nonconvexities to be considered
are at the level of the country as a whole — Young’s increasing returns on a grand
scale, or economy-wide externalites as in Lucas-Azariadis-Drazen. This reinterpretation
is fairly standard, but less obviously, the occupational choice story bears reinterpretation
as well. To see this, note that the pattern of production and trade in the world economy
will be driven by patterns of comparative advantage across countries. But in a dynamic
framework, barring nonreproducible reources such as land or mineral endowments, every
endowment is potentially accumulable, so that comparative advantage becomes endogenous.
Thus we may view countries as settling into subsets of occupational slots (broadly
conceived), producing an incomplete range of goods and services relative to the world
list, and engaging in trade.
For instance, suppose that country-level infrastructure is suitable for either high-tech
or low-tech production, but not both. If both high-tech and low-tech are important in
world production and consumption, then some country has to focus on low-tech and
another on high-tech. Initial history will constrain such choices, if for no reason than the
fact that existing infrastructure (and national wealth) determines the selection of future
infrastructure. This is not to say that no country can break free of those shackles. For
instance, as the whole world climbs up the income scale, natural nonhomotheticities in
demand will push composition more and more in favor of high-quality goods. As this
happens, more and more countries will be able to make the transition. But on the whole,
if national infrastructure is more or less conducive to some (but not the full) range of
goods, the nonconvergence model that we discussed for the domestic economy must apply
to the world economy as well.
This raises an obvious question. What is so specific about “national infrastructure”?
Why is it not possible for the world to ultimately rearrange itself so that every country
produces the same or similar mix of goods, thus guaranteeing convergence? Do current
national advantages somehow manifest themselves in future advantages as well, thus
ensuring that the world economy settles into a permanent state of global inequality?
Might economic underdevelopment across countries, at least in this relative sense, always
stay with us?
To properly address such questions we have to drop the tentative assumption that each
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country can be viewed as an individual unit. In a more general setting, there are individuals
within countries, and then there is cross-country interaction. The former are
subject to the forces of occupational structure (and possible fixed costs), as discussed in
Section 3.3. The latter are subject to the specificities, if any, of “national infrastructure”,
determining whether countries as a whole have to specialize, at least to some degree. The
relative importance of within-country versus cross-country inequalities will rest, in large
part, on considerations such as these.
I haven’t brought in international political economy so far (though see below). Yet, as
frameworks go, this is not a bad one to start thinking about the effects of globalization.
It is certainly preferable to a view of the world as a set of disconnected, autarkic growth
models.