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Global Unconditional Convergence among Larger Economies after 1998? Версия в формате PDF 
Написал AK   
13.02.2012

Global Unconditional Convergence among Larger Economies after 1998? Journal of Globalization Studies 2/2 (2011): 2562.

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Global Unconditional Convergence among Larger Economies after 1998?  

 

Journal of Globalization Studies

Andrey Korotayev

Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics”

 

Julia Zinkina

Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics”

 

Justislav Bogevolnov

Moscow State University

 

Artemy Malkov

Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics” 

Abstract

 We find rather strong evidence for the unconditional convergence among all the larger countries comprising the overwhelming majority of the world population and producing the overwhelming part of the world GDP after 1998. These findings are shown to be not as incongruent with the results of the previous convergence research as one may think – the previous research did not deny the convergence phenomenon per se, but rather insisted on its conditionality, whereas we suggest that the world-wide switch from the conditional to unconditional convergence pattern that we recently observe is accounted for by the point that by the late 1990s all the major developing countries and economies of the world began to satisfy (more or less) the major conditions of the conditional convergence. 

Keywords: economic growth; convergence; world income distribution; human capital; core and periphery, World System

 

JEL classification: O40, E10

 

 

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1 Introduction  The problem of convergence has been one of the critical issues for the economic growth discourse for a few decades. This seems most obvious and natural, as there can hardly be imagined a more attention-catching question than one of “Is the gap between the poor and the richer increasing or decreasing?” A huge number of works highlighted various aspects of convergence, such as the essence of the phenomenon itself; its presence or absence in the modern world, various world regions and groups of countries, or within some individual countries; the factors underlying the presence or absence of convergence etc. Accordingly, up to date, the theory of convergence has evolved into quite a number of branches, which have been comprehensively classified by Islam (2003: 312) in the form of antinomies:“(a) Convergence within an economy vs. convergence across economies;(b) Convergence in terms of growth rate vs. convergence in terms of income level;(c) σ-convergence vs. β-convergence;(d) Unconditional (absolute) convergence vs. conditional convergence;(e) Global convergence vs. local or club-convergence;(f) Income-convergence vs. TFP (total factor productivity)-convergence; and(g) Deterministic convergence vs. stochastic convergence”. Of greatest interest for the present paper is the essence of unconditional vs. conditional convergence problem, therefore we shall now provide a brief review of literature already existing on the subject in order to demarcate the borders of the phenomenon which will be a subject of our own research in the corresponding section.  DOWNLOAD THE WHOLE ARTICLE IN PDF 2 Unconditional vs. Conditional Convergence The cornerstone for the theory of convergence was laid in an essay “Economic Backwardness in Historical Perspective” by Alexander Gerschenkron (1952), who developed the “theory of relative backwardness” relying on data obtained from the history of European countries. The main tenet of his theory lay out as follows: “the opportunities inherent in industrialization may be said to vary directly with backwardness of the country” (Gerschenkron 1952: 6). Remarkably, Gerschenkron emphasized that the conditions inevitably required for a country to take advantage of its backwardness included “adequate endowments of usable resources’’ and the absence of “great blocks to industrialization’’ (Gerschenkron 1952: 6). Thus, backward countries (provided that the outlined conditions are observed) were bound to grow faster than the developed economies, the former thus gradually converging with the latter. The roots of the issue of unconditional convergence are frequently traced to “A Contribution to the Theory of Economic Growth” by Robert M. Solow (1956). This work is sometimes regarded as the pioneering one in laying the tenets for the hypothesis of unconditional convergence in the economic growth among the countries of the world (see, e.g., Abel, Bernanke 2005: 235).[1] On the other hand, Solow’s model implied that the output levels per capita should be higher the higher the savings rate in the country, or the lower the population growth rate. Besides, Solow’s model emphasized the role of technical progress in securing the increase in the inputs of production sufficient for sustained per capita growth. A counterstrike to Solow’s theory of diminishing returns was blown by Romer in mid-80s, when he published his article “Increasing Returns and Long-Run Growth” (1986), stating that “in contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries” (Romer 1986: 1002). Thus, Romer disproved the very essence of the idea of absolute convergence. This being a starting-point, the second half of 1980-s saw the emergence of a wave of works contradicting the idea of absolute convergence and stating the idea of conditional convergence instead (for a detailed literary survey see, e.g., Rassekh 1998). Baumol (1986), for instance, suggested that convergence could be observed within separate groups of countries. Thus, according to Baumol’s data, remarkable convergence could be observed among the productivities of industrialized market economies. Convergence was, in Baumol’s opinion, shared by planned economies. Less developed countries did not reveal any significant marks of convergence. No absolute convergence could be observed across the world as a whole. Another substantial work refuting the hypothesis of absolute convergence was one by Barro (1991). Viewing 98 countries in the period 1960–1985, Barro stated that “The hypothesis that poor countries tend to grow faster than rich countries seems to be inconsistent with the cross-country evidence” (Barro 1991: 407). A cornerstone of counter-unconditional-convergence discourse was a watershed work by Mankiw, Romer, and Weil (1992). Examining empirically a sample of 98 countries (excluding those for which oil production is the dominant industry), they proved the failure of countries to converge in per capita income during the period 1960–1985. However, of greater importance was the introduction of the notion of conditional convergence carried out in their work. Minutely regarding Solow’s theory, the researchers state that Solow model does not predict unconditional convergence; it predicts only that income per capita in a given country converges to that country's steady-state value, these values being different for various countries. From this assumption Mankiw, Romer, and Weil conclude that “the Solow model predicts convergence only after controlling for the determinants of the steady state”, nominating this phenomenon “conditional convergence”. The finding of conditional convergence is now considerably well established in the empirical literature, having been regarded in numerous studies on the data of the second half of the 20th century with different conditioning variables (see, e.g. Caggiano, Leonida 2009; Petrakos, Artelaris 2009; Romero-Avila 2009; Owen, Videras, Davis 2009; Sadik 2008; Frantzen 2004; de la Fuente 2003; Jones 1997a; Caselli, Esquivel, Lefort 1996; Sala-i-Martin 1996; King, Levine 1993; Levine, Renelt 1992; Barro 1991; De Long, Summers 1991). Currently, with regard to unconditional convergence, the absolute majority of students seem to be in unanimous agreement over the fact of the absence of absolute convergence across the world (see, e.g., Sadik 2008; Epstein, Howlett, Schulze 2007; Seshanna, Decornez 2003; Workie 2003; Canova, Marcet 1995; Durlauf, Johnson 1995; Desdoigts 1994; Paap, van Dijk 1994). Thus, Sachs et al. (1995) note that in recent decades (1970–1995) there has been no overall tendency for the poorer countries to catch up, or converge, with the richer countries. Sala-i-Martin, having analyzed a large cross-section of 110 countries, states that one of the main lessons to be gained from the classical approach to convergence analysis is that “the cross-country distribution of world GDP between 1960 and 1990 did not shrink, and poor countries have not grown faster than rich ones. Using the classical terminology, in our world there is no
σ-convergence and there is no absolute β-convergence” (Sala-i-Martin 1996: 1034). At the same time, Sala-i-Martin concludes that his analysis of a cross-section of countries sample exhibits sigma-divergence and conditional beta-convergence. The speed of conditional convergence is close to 2% per year, being very similar across the large cross-section of countries, the sub-sample of OECD countries, the states within the United States, the prefectures of Japan, and regions within several European countries (Sala-i-Martin 1996: 1034).
Much attention was given to empirical testing of the convergence hypothesis in the works by Quah (see, e.g., 1996a, 1996b, 1996c). Using a model of growth and imperfect capital mobility across multiple economies to characterize the dynamics of (cross-country) income distributions, Quah tested the convergence hypothesis and came to conclusion that the evidence showed little unconditional cross-country convergence.This idea quite concords with one expressed by Lee, Pesaran, and Smith (1997) that world countries are not converging, but diverging, which they resumed from considering international per capita output and its growth using a panel of data for 102 countries between 1960 and 1989. Much the same conclusion was almost simultaneously made by Bianchi (1997) who empirically tested the convergence hypothesis from the perspective of income distributions in a cross-section of 119 countries. By means of statistical techniques such as non-parametric density estimation and bootstrap multimodality tests, Bianchi tested for the number of modes and estimated, consistently with the detected number of modes, the income distribution of a cross-section of 119 countries in 1970, 1980 and 1989, concluding that the findings he came support the view of clustering and stratification of growth patterns over time, standing in sharp contrast with the unconditional convergence prediction. One of the most recent works refuting the unconditional convergence hypothesis is the one by Acemoglu (2009), which containes a cross-country analysis of GDP per capita values between 1960 and 2000; what is more, he maintains that “there is a slight but noticeable increase in inequality across nations” (Acemoglu 2009: 6). The conclusion on the presence of divergence was shared by many researchers, e.g. Gaulier, Hurlin and Jean-Pierre (1999), who based their research upon empirical evidence obtained from the analysis of 86 countries. A more recent work by Howitt and Mayer-Foulkes (2004) similarly resumed that among the countries of the world divergence, not convergence could be observed starting from mid-19th century.  Numerous students shared the point of view on the absence of absolute convergence throughout the countries of the world (see, e.g., Sadik 2008; Epstein, Howlett, Schulze 2007; Seshanna, Decornez 2003; Workie 2003; Canova, Marcet 1995; Durlauf, Johnson 1995; Desdoigts 1994; Paap, van Dijk 1994). At the same time, most researchers agree that there is obvious convergence among OECD countries. Abramovitz (1986) made a substantial attempt to prove the convergence of productivity levels among the economies of the developed countries. However, Abramovitz made a remarkable comment that the rate of convergence varied from period to period and showed marked strength only during the first quarter-century following World War II. He also noted that the general process of convergence was also accompanied by dramatic shifts in countries' productivity rankings. His main contribution included extending the simple catch-up hypothesis in order to rationalize the fluctuating strength of the convergence process. The main conclusion made by Abramovitz stated that “differences among countries in productivity levels create a strong potentiality for subsequent convergence of levels, provided that countries have a ‘social capability’ adequate to absorb more advanced technologies” (Abramovitz 1986: 405). However, the most important remark made by Abramovitz on the basis of his empirical analysis was that “the long-term convergence … is only a tendency that emerges in the average experience of a group of countries”, i.e. he would not regard convergence as a global-scale phenomenon. A considerable number of works has been devoted by various scholars to different aspects of convergence in OECD. Initially, there appeared some works that substantially proved the existence of convergence itself across OECD through systematic catching up in levels of total factor productivity (see, e.g., Dowrick, Nguyen 1989). Later on, the focus shifted to other aspects, such as convergence in aggregate productivity (Bernard, Jones 1996a, 1996b), convergence in international output (Bernard, Durlauf 1995; Caggiano, Leonida 2009), the impact of globalization upon convergence in OECD (Williamson 1996), various sources of convergence (i.e. government size and labor market performance) (de la Fuente 2003), technological diffusion and productivity convergence (Frantzen 2004), stochastic convergence of per capita real output (Romero-Avila 2009), country size impact upon convergence (Petrakos, Artelaris 2009), etc. Currently, there exist a remarkable number of sources revealing the particularities of convergence process in some regions of the world or groups of countries, such as Latin America (e.g. Dobson, Ramlogan 2002; Galvao Jr, Reis Gomes 2007 etc), ASEAN (e.g. Lim, McAleer 2004), some particular Asian regions and countries (Li, Xu 2007; Zhang 2003), transition countries (e.g., Rapacki, Prochniak 2009).  
 DOWNLOAD THE WHOLE ARTICLE IN PDF  3 Factors of conditional convergence Various researchers tried to specify the factors underlying the process of convergence (or its failure). Thus, Abramovitz emphasized the importance of education and organization for the process of convergence. Regarding convergence factors, Abramovitz (1986: 405) stated that “the pace of realization of a potential for catch-up depends on a number of other conditions that govern the diffusion of knowledge, the mobility of resources and the rate of investment”.The suggested failure of unconditional convergence was attributed to different factors by various students. Thus, Bradford De Long (1988: 1148) assumed that one of the factors driving some countries towards convergence was technology becoming a public good. Barro (1991: 437) concluded that “the relatively weak growth performances of countries in sub-Saharan Africa and Latin America” and their failure to catch up with the developed countries (i.e. the absence of absolute convergence) could be attributed to the lack of human capital development, discovering the fact that in his data set of 98 countries in the period 1960-1985 the growth rate of real per capita GDP was positively related to initial human capital. Cohen (1996: 351) stated that “the poor countries have failed to catch up with rich ones because the progress that they have achieved in educating their workers (which is evidenced in the convergence of domestic inputs) is not sufficient to compensate for their poor endowment in the knowledge on which the education of workers stands”. Sadik (2007) explained that simultaneous convergence among industrialized countries could be caused by the fact that technological progress diminishes the differences within the group of countries that adopt technologies but increases the gap between those countries and the rest of the world. Milanovic (2005) devoted his study purely to specifying the reasons for catch-up failure, listing the following causes: war and civil strife, and a delay in reforms among the least developed countries (LDC). Direct foreign investment and democracy, according to Milanovic, did not have any significant influence upon the failure of catch-up process among LDC. Yifu Lin (2003), on the other hand, supports the idea that the failure of most LDCs to converge with developed countries in terms of economic performance can be explained largely by their governments’ inappropriate development strategies.Sadik maintains that “technological progress reduces differences between countries adopting technology and increases the gap with regions that do not industrialize” (Sadik 2008: 352). Owen, Videras, and Davis, observing countries growth experiences over the 1970–2000 period, found evidence that “the quality of institutions and specifically, the degree of law and order, helps to sort countries into different regimes” (regimes being here quite synonymic to the notion of convergence clubs) (Owen, Videras, and Davis 2009: 265). Sachs et al. revealed the connection between convergence and economic openness and international trade, stating that “the absence of overall convergence in the world economy during the past few decades might well result from the closed trading regimes of most of the poorer countries” (Sachs et al. 1995: 37).[2] They present evidence suggesting that that the lack of convergence observed across the world can be “explained by the trade regime: open economies tend to converge, but closed economies do not. The lack of convergence in recent decades results from the fact that the poorer countries have been closed to the world”[3] (Sachs et al. 1995: 3).   DOWNLOAD THE WHOLE ARTICLE IN PDF 4 Some results of unconditional convergence research  In general, the main results of the two decades of the unconditional convergence research seem to be summed by such statements as follows:  “Empirical studies have shown consistent evidence of a cross-country income distribution displaying bimodality with a marked thinning in the middle. This result is interpreted as showing that poor countries are not catching up with the rich, but rather that there is evidence of club convergence, that is, polarization at the extremes of the income distribution”(Cetorelli 2002: 30).  “Unfortunately (from the perspective of the world’s poor countries), there is little empirical support for unconditional convergence. Most studies have uncovered little tendency for poor countries to catch up with rich ones” (Abel, Bernanke 2005: 235).  “There is no evidence of (unconditional) convergence in the world income distribution over the postwar era” (Acemoglu 2009: 17).  Acemoglu adds at this point:  “Combining the postwar patterns with the origins of income differences over the past several centuries suggests that we should look for models that can simultaneously account for long periods of significant growth differences and for a distribution of world income that ultimately becomes stationary, though with large differences across countries. The latter is particularly challenging in view of the nature of the global economy today, which allows for the free flow of technologies and large flows of money and commodities across borders. We therefore need to understand how the poor economies fell behind and what prevents them today from adopting and imitating the technologies and the organizations (and importing the capital) of richer nations” (Acemoglu 2009: 22). However, we are not really sure that the paradox outlined by Acemoglu actually exists. Does not really “the global economy today, which allows for the free flow of technologies and large flows of money and commodities across borders” lead to its logical outcome – the general convergence? Are poor economies of the world still generally failing to “adopt and imitate the technologies and the organizations (and import the capital) of richer nations”? Our own previous research (Malkov et al. 2010; Malkov, Korotayev, Bogevolnov 2010) has indicated that the overall pattern of divergence/convergence between the World System core[4] (the “First World”) and periphery (the “Third World”)[5] may be graphed as follows (see Fig. 1):  

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Fig. 1. Dynamics of the difference between the core and periphery with respect to per capita GDP

 


[1] As Abel and Bernanke (2005: 235) state, the “spirit” of Solow model supports the idea of generality of convergence.
[2] Much the same conclusion was made by Ben-David, who stated that there existed “a strong link between the timing of trade reform and income convergence among countries” (Ben-David 1993: 653).
[3] Note that Sachs et al. quite remarkably state at this point: “This is now changing with the spread of trade liberalization programs, so that presumably the tendencies toward convergence will be markedly strengthened” (Sachs et al. 1995: 3).
[4] Which in our previous research was operationalized to consist of Western Europe, Western European off-shoots, and Japan.
[5] Thus, excluding the former Soviet Union, and the former Communist countries of the Eastern Europe (the Second World). For our analysis these countries could not be included into the core due to a relatively low level of their economic development, on the other hand they could not be included in the Third World due to their high advancement in demographic transition (uncomparable to the Third World, but quite comparable with the First World).
 
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 Prof. Andrey Korotayev, Coordinator, Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics”, 30/1 Spiridonovka, Moscow 123001, Russia. Tel.: +7(917)5178034; +7(495)6983460, +7(495)6953311; fax: +7(495)6900786; e-mail: Этот адрес e-mail защищен от спам-ботов. Чтобы увидеть его, у Вас должен быть включен Java-Script Julia Zinkina, Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics”, 30/1 Spiridonovka, Moscow 123001, RussiaJustislav Bogevolnov, Faculty of Global Processes, Moscow State University, Building 2, GSP-1, Leninskiye Gory, Moscow 119991, RussiaDr. Artemy Malkov, Russian Academy of Sciences Presidium’s Program “Complex System Analysis and Mathematical Modeling of the World Dynamics”, 30/1 Spiridonovka, Moscow 123001, Russia

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