The Dynamic Nature of Comparative Advantage and of the Gains From Trade in Classical Economics

The London Economist of June 14, 1997, carried an article by Jeffrey Sachs (1997) entitled “The Limits of Convergence: Nature, Nurture and Growth,” which explores the relationship between geography, economic policies and institutions, and economic growth on the basis of recent econometric work. Four principal groups of factors were found to account for the sizable difference in per capita income growth between the South-East Asian countries and other less successful developing countries: initial economic conditions (such as the income gap separating poor countries from rich ones), policy variables, demographic factors, and resources and geography. One of the most significant conclusions (Sachs, 1997, p. 20) is that “openness was decisive for rapid growth. Open economies grew 1.2 percentage points per year faster than closed economies, controlling for everything else.”