Diverging Populations and Endogenous Growth in a Model of Meaningless Trade

The endogenous growth literature raises the possibility that countries may grow without bound in terms of per capita income, and that they may do so at different rates. This possibility also exists in neoclassical growth models with diverging populations - populations that grow at different rates. In both cases, however, this means that international inequality of per capita incomes will not only exist but also get worse over time. This paper examines that possibility within a very simple one-sector model that allows for both diverging populations and endogenous growth. The model also allows for "meaningless" trade and international direct investment, in the sense that these occur at random across countries when traders and investors are indifferent among locations. The model suggests that if people behave as needed to generate endogenous growth, then international per capita income inequality is likely to increase without bound over time, along with increases in apparent importance of international trade and investment in the world economy, a result that may suggest increasing resentment and friction across countries. The simple model, including its odd approach to trade and investment, is argued to be robust to several more conventional and complex specifications. However, the results, including endogenous growth itself, depend on behavioral parameters that may not be empirically relevant or therefore a serious cause for concern