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Trade and the Speed of Convergence

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  • E. Young Song

    () (Department of Economics, Sogang University)

Abstract

This 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.

Suggested Citation

  • E. Young Song, 2010. "Trade and the Speed of Convergence," Working Papers 1006, Research Institute for Market Economy, Sogang University.
  • Handle: RePEc:sgo:wpaper:1006
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    References listed on IDEAS

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    1. Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
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    4. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 923-943, November.
    5. David Mayer-Foulkes & Peter Nunnenkamp, 2009. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI ," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 304-318, May.
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    15. E. Young Song, 2014. "Trade and the Speed of Convergence," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 1-12, February.
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    1. E. Young Song, 2014. "Trade and the Speed of Convergence," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 1-12, February.

    More about this item

    Keywords

    convergence; factor price equalization; growth; integration; trade;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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