Trade and the Speed of Convergence
نویسنده
چکیده
This paper derives a convergence equation for a world integrated by trade. Factor price equalization induced by trade reduces saving in capital-scarce economies, while it exercises the opposite effect in capital-abundant economies. Thus income convergence among parametrically identical economies is slower in a world integrated by trade than in a world of autarkic economies. Under standard parameter values, the integrated world model generates low rates of convergence frequently observed in empirical studies, without resorting to a counterfactual share of capital or high adjustment costs in investment.
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