Krugman 45 degrees rule

Fernando Antnio de Barros Jnior

14 de julho de 2014
Resumo
Alex, z um resumo do modelo mantendo as principais hipteses e colocando me-
nor conjunto de informao necessrio para que um leitor entenda o resultado nal, a
regra de 45
o
. Fiz o texto em ingls, acreditando que era isso que voc esperava que eu
zesse. Por favor, corriga os provveis erros.
1 Model
Consider a world with two countries, Home and Foreign, and that each can produce and
consume any of an innite number of products. There are representative consumers in
those economies who derive utility of all the products accord to the following utility func-
tion:
U(c) =

i=0
c

i
1

, (1)
where c = (c
1
, c
2
, . . .), c
i
is the consumption of product i and (0, 1).
Each country is endowed with labor, the only factor of production, and is restrict to a
full employment constraint:
L =

i
, (2)
where L is the endowment of the country and
i
is is the quantity of resources used to
produce good i. The main point is ignore any differences in relative factor endowments
among countries or in factor intensities among goods that would give rise to comparative
advantage. Instead, trade arises because of increasing returns, which enter the model
through the assumption that the labor required to produce a good involves a xed cost:

i
= + x
i
, i, (3)
where and are constants and x
i
is is the output of the good i.
1
Dixit and Stiglitz (1977) show that a closed economy with this utility and technology
have a monopolistically competitive equilibrium
1
and a rm producing any good face an
elasticity of demand = (1 )
1
. Then, given this elasticity of demand, each rm will
charge a price, p, that is a markup over the wage rate, w, as follow:
p
w
=

. (4)
By the zero-prot condition one can determine the output and employment per prod-
uct:
x

p
w

= x =

(1 )
, (5)
=

1
. (6)
Thus, it is possible to determine the number of product varieties produced in a country, n.
Since is independent of i, = L/n. Then, the number of product varieties is proportional
to the labor force of a country:
n =
L(1 )

. (7)
Now, we evaluate the trade between the two countries. We add stars (

) to variables
referring to Foreign and keep Homes variables without stars. For simplicity suppose that
transport costs are negligible, then these trading economies simply constitute a world
economy with labor force L + L

. Furthermore, wage and the prices of representative

goods will be equalized independent of the size of the economies. Trade will result from
the desire of consumers in each country to diversify their purchases: with Home produc-
ing n varieties and Foreign n

. Consumers spend a fraction n/(n + n

) = L/(L + L

) on
Home goods and n

/(n + n

) = L

/(L + L

) on the Foreign goods.

Note that, Homes deated income, imports and exports respectively are:
y =
wL
p
=
L

, (8)
M = [n/(n + n

)]y, (9)
X = [n

/(n + n

)]y

. (10)
Consider that booth economies are growing, what we can represent as a growing labor
force for those countries. Note that even L and L

grow at different rates, the prices will

equalize, i.e. there no real exchange rate change.
2
1
Each good that is produced will be purchased by only one rm, since a rm could always choose to
start a new good that is equally protable, and thus has no incentive to contest markets with other rms.
2
The reason is that the faster growing country will be able to increase its share of world expenditure by
increasing the number of goods it produces faster than the other country, allowing it to sell more without a
reduction in its relative price.
2
Alex, vou escrever em portugus mesmo, depois podemos facilmente mudar o texto
para ingls caso seja necessrio.
Em primeiro lugar parece que ocorreu um typo no texto do Krugman. As equaes
de importao e exportao esto trocadas. As equaes corretadas deveriam ser:
M = [n

/(n + n

)]y, (11)
X = [n/(n + n

)]y

. (12)
O que faz mais sentido, dado que as n

/(n + n

) a frao da renda gasta em bens

importados e que n/(n + n

) a frao de renda gasta em bens nacionais.

Vamos para as contas, dado que y = L/ L = y/. Logo, como e so
contantes entre os pases, temos que
n
n + n

=
L
L + L

=
y
y + y

. (13)
Ento,
M = X =
yy

y + y

. (14)
Aplicando o logaritmo neperiano
log M = log X = log y + log y

log y + y

. (15)
Derivando no tempo

M
M
=

X
X
=
y
y
+
y

y
y + y

y + y

(16)
Denote

k =

k/k a taxa de crescimento (variao) de k. Ento,

M =

X = y + y

y
y

y
y + y

y + y

(17)

M =

X = y + y

y
y + y

y + y

(18)

M =

X = y

1
y
y + y

+ y

1
y

y + y

(19)

M =

X = y[y

/(y + y

)] + y

[y/(y + y

)]. (20)
By differentiating (9) and (10), we have:

X =

M = y[y

/(y + y

)] + y

[y/(y + y

)]. (21)
Krugman advocate that a naive econometrician were to attempt to t a conventional
3
trade model to this data would nd an apparent income elasticity of export demand and
apparent income elasticity of import demand, respectively, equal to:

x
=

X
y

= ( y/ y

)[y

/(y + y

)] + y/(y + y

), (22)

m
=

M
y

= [y

/(y + y

)] + ( y

/ y)[y/(y + y

)]. (23)
Note that the ratio of these apparent income elasticities dene the 45-degree condition:

m
=
y
y

. (24)
This simple model implies that if trade arises because specialization rather than com-
parative advantage, an econometrician should nd the 45-degree rule.
3
Furthermore, if
the 45-degree rule is a reection of something fundamental about trade ows, it should
hold over time. In particular, we should nd that if a countrys relative growth rate
changes, its apparent income elasticities should change as well, so as to preserve the 45-
degree rule.
3
The fundamental idea is that if countries are alike, then the prices of their typical traded outputs should
be the same, and apparent income elasticities will be such as to make continued price equality possible.
4