International Economics, Second Edition

CHAPTER 2

Economic Growth, Convergence, and Trade

Introduction

If there is one question in economics that dwarfs all the others in importance, it is this: Why are some countries so wealthy and others so poor? In 2011, per capita income was $49,000 in the United States, but only $1,700 in Bangladesh. Economists have been grappling with this issue for centuries. Adam Smith concluded that good governance and a well-developed division of labor were fundamental to economic growth. In the 19th century, Karl Marx argued that in modern capitalist economies, the owner class takes advantage of economies of scale in production and exploits labor, generating huge profits and a concentration of capital that will sooner or later spark a worker-led socialist ...