Farhad Rassekh

The Convergence Hypothesis: History, Theory, and Evidence

The hypothesis that per capita output converges across economies over time represents one of the oldest controversies in economics. This essay surveys the history and development of the hypothesis, focusing particularly on its vast literature since the mid-1980s. A summary of empirical analyses, econometric issues, and various tests of the convergence hypothesis are also presented. Moreover, the essay analyzes the implications of the hypothesis for economic growth, especially as it relates to underdeveloped economies.

SMITH, FRIEDMAN, AND SELF-INTEREST IN ETHICAL SOCIETY

We examine the writings of Adam Smith and Milton Friedman regarding their interpretation and use of the concept of self-interest. We argue that neither Smith nor Friedman considers self-interest to be synonymous with selfishness and thus devoid of ethical considerations. Rather, for both writers self-interest embodies an other-regarding aspect that requires individuals to moderate their actions when others are adversely affected. The overriding virtue for Smith in governing individual actions is justice; for Friedman it is non-coercion.

The Role of International Trade in the Convergence of Per Capita GDP in the OECD: 1950–1985

The convergence of per capita GDP is usually attributed to the flow of technology from the high per capita income to the low per capita income countries. This paper examines the role of international trade in the convergence process for 19 OECD countries during the period 1950–1985. The paper finds that: a) those countries start- ing with lower income increased their trade openness faster than the high income economies; and b) the countries that expanded trade faster grew more rapidly. These findings and the regression results of a growth model suggest that international trade contributed significantly to the convergence of per capita GDP.[F43]

Is International Trade More Beneficial to Lower Income Economies? An Empirical Inquiry

Does the effect of international trade on income growth depend on the economys level of development? More specifically, is trade more beneficial to lower income economies? Does trade contribute to a smaller international income inequality? The present paper seeks to answer these questions by employing the empirical model of Frankel and Romer (1999 ), which shows trade increases income growth in a cross section of 150 countries. We find evidence in support of the hypothesis that international trade benefits the lower income economies more than it benefits the higher income economies. This finding is robust in the presence of control variables including distance from the equator and institutional quality. Copyright

Micro Convergence and Macro Convergence: Factor Price Equalization and Per Capita Income

Factor price equalization implies the equality of prices of the same productive factors across countries owing to free trade. The present paper examines the relationship between factor price equalization and the equality of per capita (per worker) incomes in the contexts of the static Heckscher–Ohlin trade model and the dynamic two-sector neoclassical growth model. Factor price equalization is shown to be neither necessary nor sufficient for equality of per capita incomes across trading countries.

A test of the convergence hypothesis: the OECD experience, 1950–1990☆

Abstract The convergence hypothesis maintains that an economy whose productivity lags behind other economies has a potential to grow faster. We introduce a procedure for testing this hypothesis and apply it to 24 OECD countries for the period 1950–1990. Our approach is an attempt to capture the economics of the convergence hypothesis, while avoiding the problems associated with two popular tests of convergence, namely β -convergence and σ -convergence. An application of an ARMA process to our sample data finds only modest support for the convergence hypothesis in the OECD during the postwar era. Patterns of investment, government consumption, and exports largely explain the observed convergence in the OECD.

The interplay of international trade, economic growth and income convergence: a brief intellectual history of recent developments

The literature on the interplay of international trade, economic growth, and income convergence across economies has proliferated in the past few decades. The present essay reviews the theoretical advancements and empirical findings in this literature. The focus will be on recent developments with a few glances at the past. The essay also describes new findings and insights into the role of international trade in global income distribution. Ideas for further research are offered throughout the essay.

Adjustment in General Equilibrium: Some Industrial Evidence

The link between output changes and factor-mix adjustments in general equilibrium is examined for each of nine industries using pooled data from 12 developed countries over the years 1970-85. Specifications of the Stolper-Samuelson theorem and the specific-factors model of production are built on the assumptions and structure of theory with each industry isolated in turn. In their simplest version with only capital and labor input, these competitive general-equilibrium models explain a good deal of the observed variations in industrial factor mixes. The specific-factors model performs better. Copyright 1997 by Blackwell Publishing Ltd.

International Trade and the Relative Dispersion of Industrial Wages and Production Techniques in 14 OECD Countries, 1970-1985

The Factor Price Equalization theorem implies that freer trade would narrow the gap in returns to similar productive factors across countries over time. To determine the empirical relevance of this implication, data for 11 industries in 14 countries over the period 1970–1985 are investigated. Moreover, the paper examines the data for seven industries in the nontrade sector. Regression analyses suggest that the industry-level wages across countries are significantly influenced by the relative dispersion of production techniques at the industry level and, to a lesser extent, by international trade. The estimation of a wage model indicates that the diffusion of technology may have also played a role in the apparent convergence of wages. The findings of this paper suggest that FPE is capable of explaining the cross-country variation in returns to productive factors.

Can economic globalization lead to a more just society

We briefly review the recent literature on globalization, and present empirical evidence showing that economic globalization has been correlated with higher economic growth and lower poverty rates. We then evaluate the consequences of economic globalization in light of standards of commutative justice as Smith articulated, distributive justice as Rawls presented, and practical justice as Kolm explicated. This essay argues that economic globalization fulfills the requirements of all three species of justice.