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Per Capita Income Convergence and the Role of International Trade

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  • Matthew J. Slaughter
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    Abstract

    The recent literature on cross-country convergence of per capita income has largely ignored international trade. The reason might be perspective. Most convergence papers frame the analysis in a `Solow world' in which countries exist independent of one another. But most international trade economists have a very different perspective of a world in which countries exchange goods, factors, and ideas. The goal of this paper is to sketch out some basic relationships between per capita income convergence and international trade. First, I briefly summarize a few interesting recent papers which have linked income convergence to trade. Their common inference is that for countries which are both somehow linked by trade and converging, trade helps cause the convergence. Second, I critique these papers in light of some simple accounting and trade theory. The key point here is that countries trading is not sufficient proof that trade helps cause per capita income convergence. Finally, I give two examples applying some of these ideas to real-world data. The basic point of the paper is that more work is needed to document carefully both the exact mechanisms by which trade helps convergence and the relative contribution of trade and non-trade factors.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5897.

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    Date of creation: Jan 1997
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    Publication status: published as American Economic Review (May 1997): 194-199.
    Handle: RePEc:nbr:nberwo:5897

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    References

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    1. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
    2. Ben-David, Dan, 1996. "Trade and convergence among countries," Journal of International Economics, Elsevier, vol. 40(3-4), pages 279-298, May.
    3. Deardorff, Alan V., 1986. "Firless firwoes: How preferences can interfere with the theorems of international trade," Journal of International Economics, Elsevier, vol. 20(1-2), pages 131-142, February.
    4. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
    5. Matthew J. Slaughter, 1995. "The Antebellum Transportation Revolution and Factor-Price Convergence," NBER Working Papers 5303, National Bureau of Economic Research, Inc.
    6. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
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    Cited by:
    1. David E. Giles & Chad N. Stroomer, 2005. "Does Trade Openness Affect the Speed of Output Convergence? Some Empirical Evidence," Econometrics Working Papers 0509, Department of Economics, University of Victoria.
    2. Choi, E. Kwan, 2007. "North-South Trade and Income Inequality," Staff General Research Papers 12788, Iowa State University, Department of Economics.
    3. Matthew J. Slaughter, 1998. "International Trade and Per Capita Income Convergence: A Difference-in-Differences Analysis," NBER Working Papers 6557, National Bureau of Economic Research, Inc.
    4. Dan Ben-David & Michael B. Loewy, 1997. "Free Trade, Growth, and Convergence," NBER Working Papers 6095, National Bureau of Economic Research, Inc.
    5. Cornwell, Christopher Mark & Wächter, Jens-Uwe, 1999. "Productivity convergence and economic growth: A frontier production function approach," ZEI Working Papers B 06-1999, ZEI - Center for European Integration Studies, University of Bonn.
    6. Choi, E. Kwan, 2011. "To integrate with a high- or low-wage country: That is the question," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 792-799, October.
    7. David E. A. Giles, 2001. "Output Convergence and International Trade: Time-Series and Fuzzy Clustering Evidence for New Zealand and Her Trading Partners, 1950-1992," Econometrics Working Papers 0102, Department of Economics, University of Victoria.
    8. Farhad Rassekh, 1998. "The Convergence Hypothesis: History, Theory, and Evidence," Open Economies Review, Springer, vol. 9(1), pages 85-105, January.
    9. Alejandro Diaz Bautista & Mauro Diaz Dominguez, 2004. "Capital Humano y Crecimiento Económico en México (1970-2000). Human Capital and Economic Growth in Mexico," Urban/Regional 0405008, EconWPA.
    10. Kwack, Sung Yeung, 2004. "An optimum currency area in East Asia: feasibility, coordination, and leadership role," Journal of Asian Economics, Elsevier, vol. 15(1), pages 153-169, February.
    11. Goo, Youngwan & Park, Hyun, 2007. "Economic growth and convergence with international differences in technology," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 145-168, March.
    12. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, vol. 55(1), pages 203-228, October.
    13. Luca De Benedictis & Lucia Tajoli, 2005. "Similarity in export composition and catching-up," Working Papers 28-2005, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
    14. Choi, E. Kwan, 2008. "Factor growth and equalized factor prices," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 517-528, October.
    15. Chad Stroomer & David E.A. Giles, 2003. "Income Convergence and trade Openness: Fuzzy Clustering and Time Series Evidence," Econometrics Working Papers 0304, Department of Economics, University of Victoria.
    16. FE, Doukouré Charles, 2010. "Réduction de Droits de Douane et Convergence Réelle dans l'UEMOA
      [Tariffs Reduction and Real Convergence in WAEMU]
      ," MPRA Paper 26763, University Library of Munich, Germany.
    17. Ahmed Nawaz Hakro & Bashir Ahmad Fida, 2009. "Trade and Income Convergence in Selected South Asian Countries and Their Trading Partners," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(2), pages 49-70, Jul-Dec.
    18. Alessia Lo Turco, 2005. "South-South Trade Agreements, Location of Production and Inequality in Latin America," Ibero America Institute for Econ. Research (IAI) Discussion Papers 127, Ibero-America Institute for Economic Research.
    19. Georgios Fotopoulos, 2005. "Twin - Peaks in E.U. Regional Productivity Dynamics: a nonparametric analysis," Papers on Entrepreneurship, Growth and Public Policy 2005-28, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    20. Changkyu Choi, 2004. "Foreign direct investment and income convergence," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1045-1049.

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