Global trade model predicts persistent international income inequality and economic shocks.
The article discusses how international trade affects factor prices and economic convergence. By using a new method, the researchers show that when factor prices are equalized globally, the economy reaches a balanced state. This balance prevents economic cycles and chaos, but can also lead to persistent differences in income and productivity between countries. Real shocks in one country can affect another through trade, influencing prices and factor markets. This can result in long-lasting effects on economic inequality and growth.