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TRADE AND GROWTH RESEARCH A
paper that summarizes some of main points of the empirical research detailed
below is “Trade, Growth and Disparity Among Nations,” from Income Disparity
and Poverty, World Trade Organization Special Study 5, The
papers listed below are classified into five different groups. For convenience, the research summary that
follows this list refers only to each paper's number and not to it's complete
title. The purpose of the research summary is to show how the various papers
relate to one another. A. General Evidence on Convergence 1.
"Convergence Clubs and Diverging Economies
" B. Trade Liberalization and Convergence 2.
"Equalizing Exchange: Trade Liberalization and Income Convergence
," Quarterly Journal of Economics, 108, 653-679, Aug.
1993. 3.
"Income Disparity Among Countries and the Effects of Freer Trade
," in Economic Growth and the Structure of Long-Run Development,
Luigi L. Pasinetti and Robert M. Solow (eds.), 4.
"Evidence on the Contribution of Trade Reform Towards International Income Equalization
," Review of International Economics,
5, 246-255, May 1997, with Alok Bohara. C. Trade (in general) and Convergence 5.
"Trade and Convergence Among Countries
," Journal of
International Economics, 40, 279-298, May 1996. 6.
"Trade and the Rate of Income Convergence
," with Ayal Kimhi. 7.
"Catch-Up, Trade and Technological Diffusion
" D. Structural Changes in Output Growth and Trade 8.
"International Trade and Structural Change," Journal
of International Economics, 43, 513-523, December 1997, with David
Papell. 9.
"Slowdowns and Meltdowns: Postwar Growth Evidence from 74 Countries
," Review of Economics and Statistics, 80, 561-571,
November 1998, with David Papell. 10. "
The Great Wars, the Great Crash, and Steady State Growth: Some New Evidence About an Old Stylized Fact
," Journal of Monetary Economics, 36, 453-475, December 1995,
with David Papell. 11. "
Unit Roots, Postwar Slowdowns and Long-Run Growth: Evidence From Two Structural Breaks
," Empirical
Economics, 303-319, February 2003, with Robin Lumsdaine and David Papell. 12. "Some Evidence on the Continuity of the Growth Process Among the G7 Countries
," Economic
Inquiry, 38, 320-330, April 2000, with David Papell. E. Theoretical Models Consistent with the Above
Empirical Results 13. "
Free Trade, Growth and Convergence
," Journal of Economic Growth, 3, 143-170, July 1998,
with Michael Loewy. 14. "Knowledge Dissemination, Capital Accumulation, Trade and Endogenous Growth
," 15. "
Trade and the Neoclassical Growth Model
," Journal of Economic Integration, 18, 1-16, March
2003, with Michael Loewy. 16. "
Teach Your Children Well: Planting the Seeds of Education and Harvesting the Benefits of Trade
" 17. "
Convergence Clubs and Subsistence Economies
," Journal of Development Economics, 55,
153-169, February 1998. RESEARCH SUMMARY If
countries are arrayed along a spectrum of per capita incomes, there appear to
be only two segments of the income spectrum where the likelihood of finding
income convergence is not less than the likelihood of finding income divergence
among countries. These are the segment
comprising the world's wealthiest countries and the segment comprising the
world's very poorest countries. In
particular, if one randomly groups together countries chosen from the subset of
the world's wealthiest countries, then the probability of finding convergence
within the random groupings while not particularly high is not as
negligible as it is among most other income segments of the world. Where the convergence appears to be the most
prevalent however, is among the poorest countries. Paper 1
provides this overall convergence picture. Since
the likelihood of finding convergence within a randomly-chosen group of
countries at the upper end of the income spectrum while greater than among
most other income levels is not very high overall, there remains the question
of whether there might exist a common thread that ties together the converging
countries from those that did not converge.
The papers in groups B and C focus on the contribution of international
trade toward the convergence process. Group
B papers take trade liberalization programs as exogenous and examine how they
impact on income convergence among the affected countries. Choosing groups of countries that created and
adhered to formal timetables for the elimination of trade barriers facilitates
natural experiments that make it possible to examine the liberalizing countries
prior to, during, and after the trade reforms.
Other benchmark groups of countries are also chosen for comparison
purposes. The outcomes of these experiments
suggest that income differentials that had remained stable for decades between
countries began to decline with the reduction of trade barriers. After completion of the respective
liberalization phases in each of the groups, these income differentials
continued to remain lower than they had been prior to the reforms. The figures in papers 2 and 3
provide visual evidence of the link between the trade reforms and the reduction
in income differentials, as well as of the resultant increases in trade. The
papers in group C generalize on these findings by grouping together countries
that trade extensively with one another on the basis of each country's
directional trade data. The results from
these studies provide further support of a trade-convergence link.
Paper 5
examines non-poor countries
those with at least 25% of the Paper 7
goes further by examining why income convergence
might result from international trade.
Assuming that trade acts as a conduit for knowledge spillovers among
countries, the paper formalizes a trade-related version of the catch-up
hypothesis. The implications of the
model are then empirically examined by deflating each country's annual output
levels by its capital stocks and levels of education, creating TFPs that then
proxy for the intangible knowledge stocks of the countries. It is shown that the majority of the major
trade partners not only exhibit TFP convergence, the size of their initial TFP
gap is strongly and positively related to the extent of their subsequent TFP
convergence a finding that is not evident among countries not trading
extensively with one another. While
the evidence suggests that there exists a link between international trade and
income convergence, there still remains the question of whether this
convergence is really beneficial for all countries concerned, or whether the
trade-related convergence comes at the expense of the wealthier countries, i.e.
is this a zero-sum game?
Paper 8
shows that the postwar movement towards removing obstacles to trade has
coincided with a marked increase in trade-output ratios. At the same time however, a large number of
countries have also experienced postwar growth slowdowns (paper 9). So, if taken at face value, one might
conclude that more trade has led to slower growth. But there is another way to view this
evidence the long-run perspective. Papers 10 and 11 examine the
long-run growth paths of 16 OECD countries since 1870. Paper 10
uses sequential trend break
tests to endogenously identify the primary structural break along the 120 year
growth paths of each country.
Paper 11
utilizes a two-break unit root test to identify two structural breaks
for each country. The pictures and
tables (in both papers) of the actual paths and how they compare with the
extrapolations of the old paths provide an indication of how the growth paths
of the countries have risen over time both in levels and in growth rates. A
more recent technique for determining the existence of multiple breaks is used
in Paper 12, which focuses on the growth paths of the G7 countries. This
test facilitates a more precise delineation of each country's particular growth
periods since the late 1800s. Convergence
at the upper end of the income spectrum and convergence at its lower end
manifest themselves quite differently.
The upper-end convergence is the result of catching-up by the poorer
countries within the respective groups, whereas the low-end convergence is due
to a convergence downward (paper 1).
Paper 17 concentrates on the convergence at the lower end of the
convergence spectrum, providing a simple theoretical explanation that is
consistent with the empirical evidence.
While
the papers in groups A through D provide an idea of what the stylized facts
look like, the papers in Group E suggest some theoretical frameworks that can
help understand how these empirics are tied together under the assumption that
international trade acts facilitates the dissemination of knowledge among
countries. In particular, the empirical
work indicates a trade-related convergence in incomes while the FPE theorem
from trade theory refers only to equalization in factor prices which is not
necessarily the same thing. On the other
hand, the Solow model predicts income convergence but is a closed economy
model. Furthermore, the long-run
findings suggest that growth rates have risen, and neither of the traditional
frameworks can account for this. Endogenous growth models which can, tend to be
silent about trade-related convergence in levels. Hence,
paper 13 gives a simple endogenous growth model that can account for the
various empirical findings by focusing on knowledge spillovers resulting from
trade. The goal in paper 13 is to
develop a model that can provide not only steady-state outcomes, it can also
depict the transitional behavior between steady states that results from policy
changes. Paper 14 adds physical capital to a two-country version of the
model and provides proofs of existence and of the impacts on the steady state
that arise from unilateral trade liberalization. Paper 15
merges the models in papers 13 and 14 into an open-economy modification of the
Solow-Cass-Koopmans model. As in SCK, countries exhibit conditional convergence
in income levels, though here, trade policy can affect steady state growth. The
multi-country model developed in the paper in contrast with the more common
two-country, or two region models facilitate an analysis of how unilateral
trade liberalization, or a trade agreement by a subset of countries, will
affect not only the liberalizing countries, but also other countries that are
not partners to the agreements.
Paper 16
and the model in paper 7 distinguish between two forms of human
capital: knowledge (the stock variable) and education (the flow variable),
where it is not enough to trade with one another a country must also have the
capability to absorb the resultant knowledge spillovers for its growth to be
positively affected by changes in its trade policy. comments to danib@post.tau.ac.il
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