Abstract
Globalization and the international interdependence of states have reached their climax at the beginning of the 21st century. At the same time, growing inequalities between and within countries are leaving some behind. While a variety of models have sufficiently explained national divergence, international divergence still remains subject of numerous studies. This work contributes to the set of possible explanations for worldwide disparities by combining the ideas of classical growth theory with the gravity model of trade. The circular relations between GDP, trade flows and TFP then explain long term differences in the development of states. Resulting path dependencies thus can be explained by an International Innovation Spiral that continuously leads developed economies towards potential higher outputs while existing alongside national peculiarities. In this way, the importance of trade unions and the openness to international markets can be theoretically further substantiated.
Highlights
Even if globalization has resulted in countries being more closely connected than ever before, there are some that have benefited little or not at all
Path dependence has been like a black box to the growth literature while conditional beta-convergence just generally states that the catch-up in growth is related to additional factors mostly leading to club-convergence within a homogeneous group of states
Combining GDP Y, trade T and technological progress A derives an International Innovation Spiral, which can explain a significant part of conditional beta-convergence between countries
Summary
Even if globalization has resulted in countries being more closely connected than ever before, there are some that have benefited little or not at all. The result is a spiraling path on which countries continuously reach higher output, technologies and total trade This International Innovation Spiral does not rule out any national effects, especially not the higher efficiency in the use of capital. There are more recent studies that contribute to the relationship between innovation and trade including Eaton & Kortum (2002), who use a dynamic Ricardian model to assign innovation to lower trade barriers and more intense international competition They propose to distinguish between technologies that are accessible to everyone and technologies that only industrialized countries can use. Especially Solow based, initially predicted that developing countries will catch up in per capita income (PCI) through a more efficient use of capital These convergences, beta-convergences, mean that economies with initially lower PCI tend to grow faster than countries with comparably higher PCI which in conclusion leads to a convergence in steady-states in the long run. This study initially proposes an International Innovation Spiral that justifies the heterogeneous developments of countries quite intuitively
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