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Working Paper No. 496

Global Income Divergence, Trade and Industrialisation: The Geography of Growth Take-Offs

Working Paper
Reference
Baldwin, Richard E., Philippe Martin and Gianmarco I. P. Ottaviano (1998). “Global Income Divergence, Trade and Industrialisation: The Geography of Growth Take-Offs”. IFN Working Paper No. 496. Stockholm: Research Institute of Industrial Economics (IFN).

Authors
Richard E. Baldwin, Philippe Martin, Gianmarco I. P. Ottaviano

This paper takes a step towards formalizing the theoretical interconnections among four post-Industrial Revolution phenomena - the industrialization and growth take-off of rich "northern" nations, massive global income divergence, and rapid trade expansion. Specifically, we present a stages-of-growth model in which the four phenomena are jointly endogenous and all are triggered by a gradual fall in the cost of doing business internationally. In the first stage, while trade costs are high, industry is dispersed and growth is low. In the second stage, the north industrializes rapidly, growth takes off and the south diverges. In the third stage, high growth becomes self sustaining. The model shows under which conditions, in a fourth stage, the south can quickly industrialize and converge.