New study reveals why global income convergence remains elusive.
The article discusses how international trade affects factor prices and economic convergence between countries. By using a new method, the researchers show that factor prices become equalized globally over time, leading to a fully integrated world economy. This equilibrium eliminates economic cycles and chaos, but can also result in persistent differences in income and wealth between countries. Real economic shocks in one country can also impact another country through trade, affecting both economies in the long run. The model developed in the study can explain why some countries do not experience income convergence and how economic shocks can have lasting effects on global economies.