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Income Convergence and trade Openness: Fuzzy Clustering and Time Series Evidence

In the now extensive literature on the convergence of per capita income (output) across countries over time, there is surprisingly little attention paid to the role of international trade in goods and services. Some more recent studies have illustrated that standard trade theories provide no clear prediction as to the impact of trade liberalization on output convergence. These studies have also provided somewhat ambiguous empirical evidence regarding this relationship, under-scoring the need for additional results in this area. This paper uses both standard and new approaches to testing for convergence in order to explore the extent to which the degree of trade openness may affect output convergence among countries. Using annual time-series data for 88 countries from the Penn World Tables, we obtain somewhat mixed results, but on balance they are quite supportive of a positive relationship (though not necessarily causality) between trade openness and income convergence. These results also suggest certain directions that further research might take in order to shed more light on this important issue.

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Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 0304.

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Length: 29 pages
Date of creation: 07 May 2003
Date of revision:
Handle: RePEc:vic:vicewp:0304
Note: ISSN 1485-6441
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  1. Ben-David, Dan, 1996. "Trade and convergence among countries," Journal of International Economics, Elsevier, vol. 40(3-4), pages 279-298, May.
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  4. David E. A. Giles, 2001. "Output Convergence and International Trade: Time-Series and Fuzzy Clustering Evidence for New Zealand and Her Trading Partners, 1950-1992," Econometrics Working Papers 0102, Department of Economics, University of Victoria.
  5. Henrekson, Magnus & Torstensson, Johan & Torstensson, Rasha, 1995. "Growth Effects of European Integration," Working Paper Series 439, Research Institute of Industrial Economics.
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  8. Matthew J. Slaughter, 1997. "Per Capita Income Convergence and the Role of International Trade," NBER Working Papers 5897, National Bureau of Economic Research, Inc.
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  11. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
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  13. O'Rourke, Kevin Hjortshøj, 1996. "Trade, Migration and Convergence: An Historical Perspective," CEPR Discussion Papers 1319, C.E.P.R. Discussion Papers.
  14. David E.A. Giles & Hui Feng, 2003. "Testing For Convergence in Output and in 'Well-Being' in Industrialized Countries," Econometrics Working Papers 0302, Department of Economics, University of Victoria.
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  19. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
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  23. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
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  25. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
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  27. Bernard, Andrew B & Jones, Charles I, 1996. "Productivity and Convergence across U.S. States and Industries," Empirical Economics, Springer, vol. 21(1), pages 113-35.
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