Catch-up in turn in a multi-country international trade model with learning-by-doing and invention

Abstract

We consider how the world income distribution evolves over time when both learning-by-doing and invention are the engines of economic growth and when countries interact with each other through international trade. The main findings are: (i) catch-up is possible; (ii) in the three-country model transitional dynamics are much richer than in the two-country model. In particular, catch-up may occur in turn: there may be a first stage in which the middle-income country grows fastest, closing the gap with the richest country but increasing the income difference with the poorest, followed by a second stage where the poorest country catches up.