International Trade and Per Capita Income Convergence: A Difference-in-Differences Analysis

In this paper I analyze whether international trade contributes to per capita income convergence across countries. The analysis focuses on four important post-1945 multilateral trade liberalizations. To identify trade's effect on income dispersion, in each case I use a difference-in-differences' approach which compares the convergence pattern among the liberalizing countries before and after liberalization with the convergence pattern among randomly chosen control countries before and after liberalization. My main empirical result is that trade liberalization did not trigger convergence in any of the four cases. If anything, trade seems to have caused income divergence.