Trade and the Speed of Convergence
AbstractThis paper derives a convergence equation for a world integrated by trade. We find that factor price equalization reduces the rate of income convergence among economies with identical preferences and identical technologies. This finding hold true both in neoclassical growth models and in endogenous growth models with human capital accumulation. The integrated world model can explain low rates of convergence frequently observed in empirical studies without resorting to a large income share of capital, constraints on international borrowing, or adjustment costs in investment.
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Bibliographic InfoPaper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1006.
Length: 48 pages
Date of creation: Mar 2010
Date of revision:
convergence; factor price equalization; growth; integration; trade;
Find related papers by JEL classification:
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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