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Equalizing Exchange: A Study of the Effects of Trade Liberalization

  • Dan Ben-David

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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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
Note: EFG
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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February.
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  4. Jovanovic, Boyan & Lach, Saul, 1990. "The Diffusion Of Technology And Inequality Among Nations," Working Papers 90-34, C.V. Starr Center for Applied Economics, New York University.
  5. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
  6. Samuelson, Paul A., 1975. "Trade pattern reversals in time-phased Ricardian systems and intertemporal efficiency," Journal of International Economics, Elsevier, vol. 5(4), pages 309-363, November.
  7. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  8. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  9. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  10. Quah, D., 1990. "Galton'S Fallacy And The Tests Of The Convergence Hypothesis," Working papers 552, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. J. Bradford De Long, . "Productivity Growth, Convergence, and Welfare: Comment," J. Bradford De Long's Working Papers _129, University of California at Berkeley, Economics Department.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  13. Andrew B. Bernard & Steven N. Durlauf, 1991. "Convergence of International Output Movements," NBER Working Papers 3717, National Bureau of Economic Research, Inc.
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