Guilló, M.D. and F. Perez-Sebastian
Review of Development Economics – 19.3 (2015), 725-734.
Abstract: Convergence among nations that share the same preferences and technologies is a key result of the closed-economy neoclassical growth framework that has received substantial support in the data. However, Heckscher–Ohlin versions of the two-sector neoclassical growth model predict that nations that differ in their capital–labor ratios may not converge to the same steady state, even if they are identical in all other aspects. This is a puzzling result that warns us about potential dangers of international trade. In this paper we show that when land, an input in fixed supply, is introduced into the model, international trade in goods no longer limits the capacity of poor nations to catch up with the advanced world.