Does International Trade Produce Convergence?

Iader Giraldo

No 15161, Documentos de Trabajo from Universidad del Rosario

Abstract: In spite of increasing globalization around the world, the e¤ects of international trade on economic growth are not very clear. I consider an endogenous economic growth model in an open economy with the Home Market Effect (HME) and non-homothetic preferences in order to identify some determinants of the di¤erent results in this relationship. The model shows how trade between similar countries leads to convergence in economic growth when knowledge spillovers are present, while trade between very asymmetric countries produces divergence and may become trade in a poverty or growth trap. The results for welfare move in the same direction as economic growth since convergence implies increases in welfare for both countries, while divergence leads to increases in welfare for the largest country and the opposite for its commercial partner in the absence of knowledge spillovers. International trade does not implicate greater welfare as is usual in a static context under CES preferences.

Keywords: International Trade; Economic Growth; Home Market E¤ect; Non-homotheticPreferences. (search for similar items in EconPapers)
JEL-codes: F12 F43 O33 O41 (search for similar items in EconPapers)
Pages: 31
Date: 2016-09-09
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:015161

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