Evidence on the Contribution of Trade Reform Towards International Income Equilization

Abstract

This paper provides some historical evidence on the impact of trade reform on income disparities between the liberalizing countries. The convergence test developed here involves joint estimation of augmented Dickey‐Fuller type equations using seemingly unrelated regression (SUR) techniques. Monte Carlo simulations are used to calculate the critical values which are in turn used to determine the significance of convergence. We find that countries which embarked on extensive trade liberalization programs exhibited significant income convergence with one another while countries that did not liberalize trade showed no evidence of convergence.