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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, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:1006
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    References listed on IDEAS

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    Cited by:

    1. Alexander B. Darku, 2021. "International trade and income convergence: Sorting out the nature of bilateral trade," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5337-5348, October.
    2. Vaseem Akram, 2018. "Does export diversification converge? Evidence from cross-country analysis," Economics Bulletin, AccessEcon, vol. 38(4), pages 2141-2151.

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    More about this item

    Keywords

    convergence; factor price equalization; growth; integration; trade;
    All these keywords.

    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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