Essays in Honor of Lance Taylor
Edited by Amitava Krishna Dutt
Chapter 16: Income elasticities of imports, North-South trade and uneven development*
16. Income elasticities of imports, North–South trade and uneven development* Amitava Krishna Dutt** 1 INTRODUCTION The gap in per capita income levels between the rich and poor countries of the world is enormous. In 1998, the average per capita GNP of the countries the World Bank classiﬁes as high-income countries was almost 50 times that of low-income countries, and 67 times that of these countries leaving out China and India. In terms of purchasing power adjusted per capita ﬁgures, the gap narrows somewhat, but these multiples remain high, at 11 and 17. The question naturally arises whether this gap will close over time or widen. Evidence about past trends yields a dismal picture. The standard deviation of the log of PPP adjusted per capita GDP has gone up between 1960 and 1990, implying what is called -divergence (Sala-i-Martin, 1996). The Lorenz curve showing income distribution between countries has moved up over the same period, and the Theil index has increased as well (Stocker, 1994). The equation regressing the growth rate of per capita GDP on initial per capita income has a positive slope, implying what is called ␤divergence, although the ﬁt is loose (Sala-i-Martin, 1996). Quadratic regressions imply an inverse-U shape for the relation, implying a positive relation between starting income and growth for most of the sample, and a negative relation for a small group of rich countries (Baumol, Blackman and Wolﬀ, 1989; Ros, 2000). Quah (1993) estimates a 5ϫ5 Markov chain transition matrix in which...
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