Working Paper: CEPR ID: DP1359
Authors: Dan Bendavid; A K M Atiqur Rahman
Abstract: This paper builds on earlier evidence showing that, while most countries exhibit little evidence of unconditional income convergence, countries that trade heavily with one another tend to exhibit a much higher incidence of convergence. Two alternative explanations for the trade-related convergence are explored here. The first alternative is that the trade-related income convergence is due to a convergence in capital-labour ratios. Little support is found for this explanation. The other alternative examined here is that of a trade-related convergence in technologies. This alternative is corroborated by a high incidence of convergence in total factor productivities among countries that trade heavily with one another ? an outcome that is not common between these same countries when they are grouped randomly rather than on the basis of trade.
Keywords: income convergence; technology; TFP; international trade
JEL Codes: C22; O1; F5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income convergence (F62) | total factor productivity (TFP) (D24) |
| capital-labor ratios (J24) | income convergence (F62) |
| capital-labor ratios (J24) | total factor productivity (TFP) (D24) |
| trade relationships (F10) | income convergence (F62) |
| trade relationships (F10) | total factor productivity (TFP) (D24) |
| initial income levels (D31) | income convergence (F62) |
| initial income levels (D31) | total factor productivity (TFP) (D24) |