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Per Capita Income Convergence and the Role of International Trade

  • Matthew J. Slaughter
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    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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    File URL: http://www.nber.org/papers/w5897.pdf
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    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
    Note: ITI
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    1. 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.
    2. 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,.
    3. Ben-David, Dan, 1995. "Trade and Convergence Among Countries," CEPR Discussion Papers 1126, C.E.P.R. Discussion Papers.
    4. Matthew J. Slaughter, 1995. "The Antebellum Transportation Revolution and Factor-Price Convergence," NBER Working Papers 5303, National Bureau of Economic Research, Inc.
    5. 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.
    6. 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.
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