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AbstractThe mutual dependence between national integration and institution building is established in a formal model. It is shown that a decrease in transportation costs, but not necessarily an increase in population size, reduces the equilibrium number of states and the adoption of rule‐based institutions. With endogenous transportation costs or endogenous population size, the unification process can feed on itself. The model is illustrated by the state of Qin's unification of China in 221 BC. During this process of national integration, transformations from relation‐based governance to rule‐based governance happened.

AbstractA country's unemployment rate can be affected by technology choice and the opening of international trade. This general equilibrium model examines the impact of international trade with the presence of dual labor markets in which manufacturing firms engage in oligopolistic competition and choose technologies with different marginal and fixed costs to maximize profits. In a closed economy, it is shown that an increase in labor market efficiency or a population increase induces manufacturing firms to adopt more advanced technologies and the wage rate in the manufacturing sector increases. With the existence of a continuum of technologies, technology choice is not a source of firm heterogeneity. The opening of international trade leads to an increase in the wage rate in the manufacturing sector and the price of the agricultural good. When countries are identical, international trade always increases national welfare.

AbstractIf institutions are essential for long‐run performance, why don't developing countries adopt institutions in developed countries to become rich? In this dynamic model, culture affects a ruler's institutional choice, while culture itself evolves endogenously. Multiple stable steady states are possible, and even similar initial conditions can lead to dramatically different steady states. The state of Qin's unification of China in 221 bc is used to illustrate the model. In one steady state, consistent with what happened in the state of Qin, individuals value material incentives. Qin did not strictly practice the patriarchal clan system advocated by Confucianism. Qin adopted Legalist institutions under which government officials were chosen by merit, and Qin culture was further shaped by Legalism. In another steady state, consistent with what happened in states other than Qin, individuals value loyalty and family values. Those states chose not to adopt Legalist institutions comprehensively, fearing that inconsistencies between culture and institutions could lead to internal rebellions even though institutional reforms would increase their military power. Other cases of how the interdependence between culture and institutions affects performance are also discussed.

AbstractHow resource abundance and market size affect the choice of increasing returns technologies is studied in an overlapping‐generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. The model is surprisingly tractable. First, for the steady state, the wage rate, the level of technology, and capital stock are not affected by the amount of natural resources. An increase in the share of agricultural revenue going to natural resources leads to a lower wage rate and firms choose less advanced technologies. Second, an increase in market size increases the equilibrium wage rate, level of technology, and capital stock. Finally, other things equal, a country with a lower endowment of natural resources or a higher market size has a comparative advantage in producing the manufactured good.

PurposeThe purpose of the paper is to study how technology choice is affected by capital accumulation when there is unemployment and firms engage in oligopolistic competition.Design/methodology/approachIn this infinite horizon model, unemployment results from the existence of efficiency wages. Consumers choose saving optimally, and there is capital accumulation. Firms producing intermediate goods engage in oligopolistic competition and choose technologies to maximize profits. A more advanced technology has a higher fixed cost but a lower marginal cost of production.FindingsIn the steady state, it is shown that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. Interestingly, the equilibrium unemployment rate decreases with the size of the population.Originality/valueIn this model, unemployment results from the existence of efficiency wages and firms engage in oligopolistic competition. One difficulty with efficiency wage models is that saving is not allowed. However, in this model, consumers choose saving optimally, and capital accumulation is allowed. With oligopolistic competition, the authors show that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. The equilibrium unemployment rate decreases with the size of the population.