Introduction

To what extent may regional integration help a poor country to speed up its capital accumulation and its growth rate and, perhaps, catch up with the rich? In a couple of recent papers, Barro and Sala-i-Martín (1990, 1991) (henceforth BS) have challenged the conventional wisdom according to which regional integration may speed up ‘convergence’. They show indeed that the pattern of growth of regions is not significantly different from the pattern of growth of nations. In both cases, they show that regions or nations appear to converge towards their steady state at the same speed of about 2% a year. In conclusion of their latest paper (1991) they go as far as suggesting that regional integration such as that (spectacularly) undertaken in Germany will proceed at this quite universal speed of 2% a year, implying that about 25 years will be needed before half the gap between the two parts of Germany is closed. How can this be? What if West Germany were to devote all its resources to merging with its Eastern counterpart?

In order to address these questions, I present in the first part of the paper a simple theoretical model in which I examine the effects of free access to world financial markets on the pattern of growth of a (small) country. In the model that I examine, the conditions for convergence (towards a steady state) are the same in the closed and in the open ecnomy.