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International Trade and Economic Convergence: The Credit Channel

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  • Lane, Philip R

Abstract

In this paper, we examine a particular mechanism by which international trade accelerates economic convergence. We develop a model of growth under credit constraints in which international trade expands access to credit. We show in numerical simulations that reasonable values for openness generate convergence rates that match well the empirical estimates. We econometrically investigate a key prediction of the model--that more open economies exhibit greater debt to output ratios--and find substantial support in the data for this claim. This remains true even when we control for a host of additional factors and conduct robustness checks. Copyright 2001 by Oxford University Press.

Suggested Citation

  • Lane, Philip R, 2001. "International Trade and Economic Convergence: The Credit Channel," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 221-240, April.
  • Handle: RePEc:oup:oxecpp:v:53:y:2001:i:2:p:221-40
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    Cited by:

    1. Christopoulos, Dimitris K. & Gente, Karine & León-Ledesma, Miguel A., 2012. "Net foreign assets, productivity and real exchange rates in constrained economies," European Economic Review, Elsevier, vol. 56(3), pages 295-316.
    2. Philip R. Lane & Gian M Milesi-Ferretti, 2000. "External Capital Structure; Theory and Evidence," IMF Working Papers 00/152, International Monetary Fund.
    3. Lipschitz, Leslie & Rochon, Céline & Verdier, Geneviève, 2011. "A real model of transitional growth and competitiveness in China," Journal of Asian Economics, Elsevier, vol. 22(4), pages 267-283, August.
    4. Genevieve Verdier, 2005. "The (Much Understated) Quantitative Role of Capital Accumulation and Saving," Macroeconomics 0507015, University Library of Munich, Germany.
    5. Lin, Faqin & Sim, Nicholas C.S., 2013. "Trade, income and the Baltic Dry Index," European Economic Review, Elsevier, vol. 59(C), pages 1-18.
    6. Verdier, Genevieve, 2008. "What drives long-term capital flows A theoretical and empirical investigation," Journal of International Economics, Elsevier, vol. 74(1), pages 120-142, January.
    7. Philip L. Brock, 2009. "Collateral Constraints and Macroeconomic Adjustment in an Open Economy," Working Papers UWEC-2009-03, University of Washington, Department of Economics.
    8. Leslie Lipschitz & Genevieve Verdier & Celine Rochon, 2008. "A Real Model of Transitional Growth and Competitiveness in China," IMF Working Papers 08/99, International Monetary Fund.
    9. Tarlok Singh, 2010. "Does International Trade Cause Economic Growth? A Survey," The World Economy, Wiley Blackwell, vol. 33(11), pages 1517-1564, November.
    10. Sergio Ginebri & Giacomo Pietroli & Laura Sabani, 2001. "Financial Deepening, Trade Openness and Growth:a Multivariate Cointegrated Analysis of the Complementary Effects," Working Papers 62, Sapienza University of Rome, CIDEI.
    11. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
    12. Omar Neme Castillo & Ana Lilia Valderrama Santibáñez & Humberto Ríos Bolívar, 2013. "Comercio internacional, IED, capital humano e ingreso per cápita en América Latina y el Caribe," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 101-139, May.
    13. Philip R. Lane, 2015. "International Financial Flows in Low-Income Countries," Pacific Economic Review, Wiley Blackwell, vol. 20(1), pages 49-72, February.
    14. repec:eee:joecas:v:17:y:2018:i:c:p:13-20 is not listed on IDEAS

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