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Economics Research Institute Study Paper




Utah State University Department of Economics

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This paper empirically investigates the role of established country-to-country trade networks as an important consideration in exploring evidence for the income convergence across countries. Using the beta-convergence criterion we demonstrate that within trading networks, poorer economies grow faster than richer ones so that they converge in per capita income. To validate this result we estimate Monte Carlo models that simulate the characterization on beta-convergence in randomly created trading networks of 8 to 23 member countries. We find that it is less likely to find income convergence in our randomly created trading networks than in the trading networks that are formed as part of existing trade relationships. This result reaffirms the argument that countries who have established trade relationships within a trade network are more likely to experience Income convergence.