Global Income Divergence, Trade and Industrialization: The Geography of Growth Take-Offs

This paper takes a step towards formalizing the theoretical interconnections among four post-Industrial Revolution phenomena – the industrialization and growth take-off of rich 'northern' nations, massive global income divergence, and rapid trade expansion. Specifically, we present a stages-of-growth model in which the four phenomena are jointly endogenous and all are triggered by a gradual fall in the cost of trading goods internationally. In the first stage, while trade costs are high, industry is dispersed and growth is low. In the second stage, the north industrializes rapidly, growth takes off and the south diverges. In the third stage, high growth and global divergence become self sustaining. We then show that, in a fourth stage, when transaction costs on “trading” ideas have sufficiently decreased, the south can quickly industrialize and converge