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Equalizing Exchange: A Study of the Effects of Trade Liberalization

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  • Dan Ben-David

Abstract

It has been quite broadly documented that, historically, there has not been widespread convergence in levels of income across countries. This paper addresses the question of whether the behavior of cross-country income differentials over time, within a specified group of countries, might be affected by the removal of trade barriers. The analysis focuses on the evolutionary period of the European Economic Community, which is characterized by a specific timetable for the removal of trade barriers. This liberalization is shown to be strongly related to a significant income convergence that took place between the members of the Community. The evidence indicates that, until their trade became more liberalized, the income differentials between the countries of the EEC behaved very much like the income differentials between the industrialized countries today. After the onset of freer trade, the EEC countries achieved a reduction in income disparity that exhibited a marked similarity to the income convergence that occurred between the states of the U.S. This came about despite the fact that inter-state migration is considerably more widespread and unrestricted than are labor movements within the European Community.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3706.

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Date of creation: May 1991
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Publication status: published as The Quarterly Journal of Economics, vol. cviii, issue 3, August 1993, (MIT Press, Cambridge), p. 653
Handle: RePEc:nbr:nberwo:3706

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  1. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "International Trade with Endogenous Technological Change," NBER Working Papers 3594, National Bureau of Economic Research, Inc.
  2. De Long, J Bradford, 1988. "Productivity Growth, Convergence, and Welfare: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1138-54, December.
  3. Andrew B. Bernard & Steven N. Durlauf, 1991. "Convergence of International Output Movements," NBER Working Papers 3717, National Bureau of Economic Research, Inc.
  4. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 407-43, May.
  5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  6. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 163, Cowles Foundation for Research in Economics, Yale University.
  7. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, Elsevier, vol. 4(1), pages 49-53, February.
  8. Samuelson, Paul A., 1975. "Trade pattern reversals in time-phased Ricardian systems and intertemporal efficiency," Journal of International Economics, Elsevier, Elsevier, vol. 5(4), pages 309-363, November.
  9. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  10. Quah, D., 1990. "Galton'S Fallacy And The Tests Of The Convergence Hypothesis," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 552, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. L. Wade, 1988. "Review," Public Choice, Springer, Springer, vol. 58(1), pages 99-100, July.
  12. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1072-85, December.
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Cited by:
  1. Verspagen, Bart, 1995. "Convergence in the global economy. A broad historical viewpoint," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 6(2), pages 143-165, June.
  2. Robert E Lucas, 1999. "Making a Miracle," Levine's Working Paper Archive 2101, David K. Levine.
  3. de Melo, Jaime & Montenegro, Claudio & Panagariya, Arvind, 1992. "Regional integration, old and new," Policy Research Working Paper Series 985, The World Bank.

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