Multi-Country Growth Economies

It is important to examine the possible effects of trade upon personal income distribution in a globalizing world economy.1 In 1997, Forbes magazine counted 170 billionaires. Microsoft’s Bill Gates had $40 billion, the investor Warren Buffet, $21 billion, the Dupont family $14 billion, the Rockefeller family $7 billion. At the same time, in 1995 the average American family was worth $45,600. Real wage rates for most Americans have not increased much over the last 20 years. It is held that the rise in inequality between the rich and the poor and the decline of real wages of the less skilled in the US is closely related to international trade with low-wage countries.2 Nevertheless, some economists argue that the role of foreign trade in enlarged inequality is negligible. Keller (2004) examines the extent of international technology diffusion and the channels through which technology spreads.3 It is shown that productivity differences explain much of the variation in incomes across countries, and technology plays a key role in determining productivity. The pattern of worldwide technical change is determined largely by international technology diffusion because a few rich countries account for most of the world’s creation of new technology. Cross-country income convergence turns on whether technology diffusion is global or local. There is no indication that international diffusion is inevitable or automatic, but rather, domestic technology investments are necessary. Winter et al. (2004) have recently examined the impact of trade policy reform on poverty in developing countries.