Trade liberalization and per capita income convergence: a difference-in-differences analysis

In this article I analyze whether trade liberalization contributes to per capita income convergence across countries. The analysis focuses on four post-1945 multilateral trade liberalizations. To identify trade’s effect on income dispersion, in each case I use a ‘difference in differences’ approach which compares the convergence pattern among the liberalizing countries before and after liberalization with the convergence pattern among control countries, chosen using a variety of methods, before and after liberalization. My main empirical result is I find no strong, systematic link between trade liberalization and convergence. In fact, much evidence suggests trade liberalization diverges incomes among liberalizers.