is the process where poorer economies catch up to richer ones in income or . It's driven by technology transfer, capital flows, and trade, allowing developing countries to grow faster and narrow the income gap with developed nations.
Factors promoting include investment, , and . However, challenges like lack of infrastructure and political instability can hinder progress. The pace of convergence varies across countries, with East Asian nations experiencing rapid while others lag behind.
Economic Convergence and Global Growth
Economic convergence in global growth
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Data limitations and measurement issues complicate cross-country comparisons
Convergence can occur at different levels (income, productivity, living standards)
Future prospects for convergence depend on addressing key challenges:
Sustaining productivity growth and technological progress in developing countries
Promoting inclusive growth to ensure benefits of convergence are widely shared
Enhancing global cooperation to address transnational issues (climate change, financial stability)
Theoretical frameworks for economic convergence
predicts based on diminishing returns to capital
emphasizes the role of human capital and innovation in long-term growth
Concepts of and conditional convergence explain different patterns of catch-up growth
hypothesis suggests groups of countries may converge to different steady states
Key Terms to Review (19)
Absolute Convergence: Absolute convergence is a concept in economic growth theory that describes the tendency of poorer countries or regions to grow at a faster rate than their wealthier counterparts, ultimately converging towards a similar level of per capita income or productivity. This phenomenon is rooted in the principle of diminishing returns, where countries with lower initial capital stocks experience greater returns on investment compared to those with higher capital stocks.
Capital Accumulation: Capital accumulation refers to the process of increasing the total stock of capital goods, such as machinery, equipment, and infrastructure, within an economy. It is a crucial driver of economic growth and development, as the expansion of productive capacity allows for increased production and higher standards of living.
Catch-Up Effect: The catch-up effect refers to the tendency of poorer or less developed economies to grow at faster rates compared to richer or more developed economies, allowing them to gradually close the income gap and converge towards higher levels of economic prosperity. This phenomenon is often observed in the context of economic convergence and is driven by various factors that facilitate rapid growth in developing nations.
Catch-Up Growth: Catch-up growth refers to the phenomenon where countries or regions with lower initial levels of economic development experience faster rates of economic growth compared to more developed economies. This allows them to narrow the income gap and converge towards higher levels of per capita income over time.
Conditional Convergence: Conditional convergence refers to the economic principle that countries or regions with similar underlying characteristics will converge towards a common level of income or economic output per capita over time, even if their initial conditions differ. This concept is closely tied to the topic of economic convergence.
Convergence: Convergence is the process by which economies with lower levels of per capita income tend to grow at faster rates compared to economies with higher levels of per capita income, ultimately leading to a narrowing of income disparities between them. This concept is central to understanding the dynamics of economic growth and development across different countries and regions.
Convergence Clubs: Convergence clubs refer to the concept in economic growth theory where countries or regions with similar characteristics and initial conditions tend to converge towards a common long-run equilibrium or steady-state level of per capita income. This phenomenon is observed when countries with lower initial income levels experience faster economic growth rates, allowing them to catch up to their more developed counterparts.
Economic Convergence: Economic convergence refers to the tendency of less developed economies to catch up to the living standards and productivity levels of more developed economies over time. It is the process by which poorer countries or regions experience faster economic growth compared to wealthier ones, reducing disparities in per capita income and standards of living.
Endogenous Growth Theory: Endogenous growth theory is an economic theory that emphasizes the importance of internal factors, such as technological progress and human capital, as the primary drivers of economic growth within an economy. It suggests that growth is generated from within the system, rather than being solely dependent on external factors.
Financial Market Development: Financial market development refers to the growth, expansion, and increased sophistication of a country's financial markets, including its stock exchanges, bond markets, and other financial intermediaries. It is a crucial aspect of economic convergence, as the development of efficient financial markets enables the mobilization and allocation of capital, facilitating investment and economic growth.
Foreign Direct Investment: Foreign direct investment (FDI) refers to the investment made by an entity or individual in one country into business interests located in another country. This can involve establishing new operations, acquiring or merging with an existing company, or expanding the operations of an existing foreign-owned business.
GDP per capita: GDP per capita is a measure of a country's economic output divided by its population, providing an estimate of the average income or standard of living of the people in that country. It is a widely used metric for comparing the economic performance and development of different countries.
Human Capital: Human capital refers to the knowledge, skills, and abilities that individuals possess, which contribute to their productivity and economic value. It is a crucial component of economic growth and development, as it represents the collective expertise, experience, and capabilities of a population that can be leveraged for productive purposes.
Institutional Quality: Institutional quality refers to the effectiveness, efficiency, and overall performance of the formal and informal institutions that govern a country's economic, political, and social systems. It is a crucial factor in determining a country's long-term economic growth and development.
Natural Resource Curse: The natural resource curse, also known as the paradox of plenty, refers to the phenomenon where countries with an abundance of natural resources, such as oil, gas, or minerals, often experience slower economic growth, political instability, and social unrest compared to countries with fewer natural resources. This paradox challenges the common assumption that natural resource wealth should lead to economic prosperity.
Productivity: Productivity is a measure of the efficiency with which inputs, such as labor and capital, are transformed into outputs of goods and services. It is a fundamental concept in economics that is closely tied to economic growth, standard of living, and overall well-being of a society.
Solow Growth Model: The Solow growth model is a neoclassical economic model that explains long-run economic growth by focusing on the accumulation of capital, labor, and technological progress. It provides a framework for understanding the factors that drive economic convergence and the role of fiscal policy in investment and growth.
Technology Diffusion: Technology diffusion refers to the process by which new technological innovations or advancements spread and are adopted across different sectors, industries, and geographic regions over time. It describes the rate and patterns of how technology is disseminated and integrated into various economic and social systems.
Trade Openness: Trade openness refers to the degree to which an economy is integrated with the global marketplace through imports, exports, and foreign investment. It is a measure of how open or closed an economy is to international trade and commerce.