Convergence theory definition, discussion and examples. Previous research has focused on regressions for output per. Third, any atuempted model of growth over the tmly long term must be able to rationalize a mmber of stylized facts about long run growth rates that are direct and indirect implications of the historically observed combination of absolute divergence and conditional convergence. Absolute or conditional convergence is the idea that poor economies tend to grow faster per capita and therefore will catch up or converge than richer ones. If the terms of the series a n are positive, absolute convergence is the same as convergence. Convergence theory and conditional income convergence. We find three convergence clubs with a states age and its initial densities of. In international extensions of the neoclassical model, the convergence effect is reinforced by the movement of capital and. Figure iii shows the same convergence result for manufacturing in aggregate, with labels identifying each country. We analyse convergence to a level of output that is conditional on investment rates, population growth rates, and the level of tfp. The idea of convergence in economics also sometimes known as the catchup effect is the hypothesis that poorer economies per capita incomes will tend to grow at faster rates than richer economies. Pdf convergence debate has been an important topic of economic growth literature.
Dissertation the use of conditional convergence between. May 19, 2015 what is the evidence on the relationship between financial development and development. Economic convergence meaning in the cambridge english. This implies that there is only conditional convergence. Lets talk about three basic series to help illustrate the point. Developing countries have the potential to grow at a faster. The impacts of globalisation on growth and inequality in less developed countries. Introduction to development fall 2008 now if there is no unconditional convergence we have exactly the picture in. Unconditional convergence in manufacturing the quarterly. Our results point to a conditional convergence speed of about seven percent per year, well above the twopercent gure often cited as a stylized fact. The objective of this paper is to examine the hypothesis of conditional convergence in. Does the solow model include natural resources and geography as factors. Economic growth and convergence across the united states robert j.
Lastly, the low population growth rate resulting from the restrictive population policy makes an important. Conditional convergence and the dynamics of the capital. Convergence theory is a subset of this literature, and it is concerned with whether. Well look at the data, talk about growth and convergence across the world. If we control for differences in the rate of population growth and savings then conditional convergence predicts the longrun growth rates of all countries will be the same. Conditional convergence to development economics there is a large literature about the importance of geography and landnatural resources in explaining a countrys economic wealth. The need for period and industry fixed effects will be motivated subsequently. Absolute convergenceconditional convergencethe ratio. Midterm exam 1answers human resources and economic.
It has tested absolute and conditional convergence hypotheses for a. What is the evidence on the relationship between financial development and development. Barro xavier sala i martin working paper no 3419 national bureau of economic research 1050 massachusetts avenue cambridge, ma 028 august 1990 we have benefited from research support by the national science foundation, the bradley foundation, and the hoover institution. The adjustment mechanism is the beta convergence concept with a coefficient. The slow convergence of per capita income between the developing.
Gdp per capita convergence, often described as the catchup process, refers to the process by which less advanced economies with lowerincome per capita converge towards more advanced economies through higher growth rates, as they capitalise on technology transfer, inward investment, and relatively lower labour costs. There does not seem to be any work that has looked at highly disaggregated data for. Notes for a course in development economics debraj ray version 3. Once one starts to think about them, it is hard to think about anything else. We design a new method to detect household poverty traps. Example are the following series absolutely convergent. Conditional convergence is more rapid than unconditional convergence. Furthermore, the inclusion of empirically significant variables such as human capital, income distribution,and fertility in conventional growth model, along with capital markets imperfections, externalities, and nonconvexities, strengthens the viability of club convergence as a competing hypothesis with conditional convergence. In the convergence literature this is known as the absolute or unconditional convergence hypothesis, convergence in terms of both growth rate and income level is. We use regression tree analysis to identify convergence clubs among the states and argue that the club characterization of the data dominates the other two. But there does appear to be some conditional convergence.
Nov 18, 2012 conditional convergence is more rapid than unconditional convergence. Haar is the haar wavelet of length 2, db4 and db8 denote the daubechies wavelets. Real gdp ppp per labour force has been growing since at least 1993 in the. This is a restatement of unconditional convergence. Our results point to a conditional convergence speed of about seven percent per year, well above the twopercent. We then design and apply a method to detect conditional convergence. European union, economic integration, economic growth, conditional convergence. Agriculture and life sciences and professor of economics, iowa state university. Nov 11, 2008 convergence, as used in the theory of economic growth, refers to the tendency of less developed economies to grow more quickly than more mature economies.
Rule of law and openness are also estimated to influence the speed of convergence toward the longterm equilibrium. Second, i document the structural characteristics that contribute to this institutional convergence. Conditional convergence also contributes significantly to growth differences between china and other countries. Testing the hypothesis of absolute and conditional convergence. See marginal revolution university video on geography and growth. Barro, harvard university august 2012 abstract in an 80country panel since the 1960s, the convergence rate for per capita gdp is around 1. However, the capital per worker will only generate faster growth rates if the values of the other parameters savings, technology, population growth, etc. There does not seem to be any work that has looked at highly disaggregated data for manufacturing or at the manufacturing experience of countries beyond organisation for economic cooperation and develop. Gilles dufrenot, professor of international economics, defi university of aix. Economic growth, and therefore economic convergence, requires reasonably. The negative and highly significant slope is unmistakable, illustrating the central conclusion of this paper. Absolute convergence, conditional convergence, and. Economic convergence and economic policies 5 case foundation as a result of increasing returns to scale in one form or another3.
Because of diminishing returns to capital, poor economies have high rates of return and therefore tend to grow faster than rich economies. Countries with low levels of economic freedom in 1980 \catch up at a rate of 0. A lower starting value of per capita income tends to generate a higher per capita growth rate, provided we control for the determinants of the steady state. Economic growth, convergence, and agricultural economics.
The second holds that convergence is a fact of life, but only among countries with a sound human capital base for using modern technology. Connect solow model and conditional convergence to development economics there is a large literature about the importance of geography and landnatural resources in explaining a countrys economic wealth. This essay is a draft of a chapter written for eventual publication in the handbook of regional and urban economics, volume 4, edited by vernon henderson and jacquesfrancois thisse. Conditional convergence is welldocumented for the eu. This beta convergence is conditional o n an array of explanatory variables that hold constant countries longrun characteristics. Conditional convergence is the idea that each economy converges to its own steady state, and its speed of convergence is faster the further it is from its own steadystate value. There is virtually no field of development economics where the dog that did not bark unconditional convergence has not led to vicious barking and biting in the garb of claims on. True or false neutral technological progress leaves unchanged the marginal rate.
G7089 is annual growth in real gdp per capita between 1970 and 1989. Usually the question of absolute versus conditional convergence pertains to series that have a mixture of positive and negative terms as in an alternating series. Convergence theory and conditional income convergence in. Poverty traps, convergence, and the dynamics of household.
Absolute, conditional, or club convergence in the u. The simple model of convergence also has to be put through enormous contortions to. If developing economies are to continue to converge with their advanced counterparts, they will need to deploy new technologies relatively efficiently, taking into account the role of labormarket. Most households had annual income growth of over 2%, and income mobility is high. Also, while examining convergence in other key macro variables, such as welfare and health, is as interesting and important our focus here is on per capita income convergence as we do not want to risk a further loss of focus. We apply the method to a unique panel that follows rural indian households over thirty years. Ickes fall 2008 what is development economics about. Sep 30, 2019 convergence theory presumes that as nations move from the early stages of industrialization toward becoming fully industrialized, they begin to resemble other industrialized societies in terms of societal norms and technology. It frames convergence with supposedly developed nations as a goal of socalled undeveloped or developing nations, and in doing so, fails to account for the numerous negative outcomes that often follow this economicallyfocused model of development. Poverty traps, convergence, and the dynamics of household income. Apart from the innovation effects, the sizes of the other effects are jointly estimated in a conditional convergence framework with a sample of about 120 countries, without the use of country fixed effects. Contents 1 absolute convergence 2 conditional convergence we should touch upon the convergence hypotheses of the solowswan model, given that it has generated much empirical speculation in recent years.
1595 339 593 238 1337 30 1515 799 649 1274 253 982 609 243 1313 222 298 860 995 1589 191 150 58 48 1510 68 1357 936 56 680 1144 626 1431 8 41 634 115 405 439 559 659 1183 1179 364 711