Income Convergence within and between Countries

Ronald David Fischer and Pablo Serra ()

International Economic Review, 1996, vol. 37, issue 3, pages 531-51

Abstract: The authors study how trade changes the rate of income convergence within and between countries in a model of endogenous growth. An externality in the production of human capital implies that inequality slows down growth under autarky. Eventually incomes converge, raising the growth rate. Trade accelerates (slows down) growth and the rate of income convergence in the poor (rich) country. In the long run, trade ensures that countries grow at the same rate and that the ratio of their incomes tends to one. Trade pattern reversals are possible since the initially wealthy country may be overtaken by the poor country. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1996
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