The effects of international trade on income convergence of the European Union member states

Abstract

The income convergence is a subject of debate among economists since the formulation of the Robert Solow's neoclassical growth model. The income convergence is a situation when income of poorer countries is approaching the income level of richer countries, due to more pronounced economic growth rates of poorer countries in a certain period of time. Faster growth of poorer countries is a consequence of diminishing returns on capital, which is a basic assumption of the neoclassical growth model. The subject of this paper is the effect of international trade on income convergence of the European Union member states. Regression analysis is used in this paper to test the research hypothesis: higher volume of bilateral trade causes income convergence. The results tell us in favour of the proposed hypothesis-higher volume of bilateral trade leads to income convergence. Uticaj međunarodne trgovine na konvergenciju dohotka zemalja članica Evropske unije Apstrakt: Konvergencija dohotka je predmet rasprave među ekonomistima još od formulisanja neoklasičnog modela rasta Robert Solow-a. Konvergencija dohotka predstavlja situaciju kada se dohotak siromašnijih zemalja približava nivou dohotka bogatijih zemalja, zbog izraženije stope privrednog rasta siromašnijih zemalja u određenom vremenskom periodu. Brži rast siromašnijih zemalja posedica je opadajućih prinosa na kapital, što i predstavlja osnovnu