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On the structure of the present-day convergence Версия в формате PDF 
Написал Administrator   
22.04.2014

 Campus-Wide Information Systems
Vol. 31 No. 2/3, 2014
pp. 139-152

On the structure of the
present-day convergence
DOWNLOAD THE WHOLE ARTICLE AS A PDF FILE

Andrey Korotayev
Laboratory of Monitoring of Risks of Sociopolitical Destabilization,
National Research University Higher School of Economics,
Moscow, Russia and System Forecasting Center,
Institute of Oriental Studies of the Russian Academy of Sciences,
Moscow, Russia, and

 

Julia Zinkina
Laboratory of Monitoring of Risks of Sociopolitical Destabilization,
National Research University Higher School of Economics, Moscow, Russia

 

2011 World GDP (PPP) per capita by country

ABSTRACT

In the recent years, the gap between high-income and middle-

income countries is decreasing especially rapidly. The gap

between high-income and low-income countries, meanwhile, is

decreasing at a much slower pace. At the same time, the gap

between middle-income and low-income countries is actually

widening. Indeed, in the early 1980s GDP per capita in the low-

income countries was on average three times lower than in the

middle-income countries, and this gap was totally overshadowed

by the more than ten-time abyss between the middle-income

and the high-income countries. Now, however, the GDP per

capita in low-income countries lags behind the middle-income

ones by more than five times, which is largely the same as the

gap (rapidly contracting in the recent years) between the high-

income and the middle-income countries. This clearly suggests

that the configuration of the world system has experienced a

very significant transformation in the recent 30 years.

 
Various aspects of convergence and the catch-up effect have attracted considerable
scholarly attention, including the questions of unconditional (absolute) convergence
vs conditional convergence; global convergence vs local or club-convergence;
s-convergence vs b-convergence, etc. (for a systemic review see, e.g. Islam, 2003). This
paper seeks to contribute to the existing literature on unconditional convergence of
the per capita incomes at the global level. Indeed, basing on the tenets of the theory
of convergence laid in the classic works of Gerschenkron (1952) and Solow (1956), one
could regard the increasing globalization and world connectedness in the 1990s and
the 2000s as sufficient grounds to expect convergence trends at the global level during
this period. Contrary to such expectations, a substantial number of scientific papers
investigated the global economic dynamics of this time to disprove unconditional
convergence and refute its very idea, stating the phenomenon of conditional
convergence instead (see the next sections). However, most of these papers limit their
investigation period with the early or the mid-2000s. In our opinion, some of the global
trends which revealed themselves particularly clearly in the second half of the 2000s
call for a revision of the convergence issue. Indeed, “the recent wave of globalization
has been spurred mainly by two factors: technological change – bringing about
noticeable reductions in transport and information costs across countries; and policy
decisions – pursuing tighter regional and supraregional integration schemes”
(Villaverde and Maza, 2011, p. 952). Both these trends are likely to contribute to
convergence, so in the current paper we pose two questions:
(1) whether any signs of unconditional convergence can be seen and, if so, what
does its structure look like; and
(2) what impact the various recent global trends had upon the convergence trends.
Why should one expect to observe unconditional convergence?
The theory of convergence predominantly relies on the two classic works. First, in 1952
Alexander Gerschenkron in his “Economic Backwardness in Historical Perspective”
essay showed that relative backwardness of a country can contribute to its development
if supported by “adequate endowments of usable resources’’ and the absence of “great
blocks to industrialization” (Gerschenkron, 1952, p. 6). Then, in 1956, Robert M. Solow
published “A contribution to the theory of economic growth” pioneering the idea of the
generality of unconditional convergence worldwide (Solow, 1956).
Two fundamental convergence-driving forces can be derived from these works.
First, developing nations can draw upon the skills, production methods, and technology
of more advanced countries. “As low-income countries draw upon the more productive
technologies of the leaders, we would expect to see convergence of countries toward the
technological frontier” (Samuelson and Nordhaus, 2005, p. 584).
Second, diminishing returns (to capital, etc.) are weaker in the developing countries
than in the developed ones. Thus, “the diminishing returns to capital [implied by the
Solow model] has another important implication: Other things equal, it is easier for a
country to grow fast if it starts out relatively poor. This effect of initial conditions on
subsequent growth is sometimes called the catch-up effect. In poor countries, workers
lack even the most rudimentary tools and, as a result, have low productivity. Small
amounts of capital investment would substantially raise these workers’ productivity.
By contrast, workers in rich countries have large amounts of capital with which to
work, and this partly explains their high productivity. Yet with the amount of capital
per worker already so high, additional capital investment has a relatively small
effect on productivity. Studies of international data on economic growth confirm this
catch-up effect: Controlling for other variables such as the percentage of GDP devoted
to investments, poor countries tend to grow at faster rates than rich countries”
(Mankiw, 2008, p. 258).
Additionally, Abel and Bernanke note that according to the Solow model, if the
economy is open, the absolute convergence gets support of some additional economic
forces. Since poorer countries have less capital per worker and therefore a higher
marginal product of capital than the more affluent countries, investors from richer
countries will be able to get greater profits by investing in poor countries. Therefore,
foreign investment should provide a more rapid increase in capital stock in poor
countries, even if the level of domestic savings in these countries is low (Abel and
Bernanke, 2005, p. 234; for more detail see also Korotayev and de Munck, 2013;
Korotayev et al., 2011a, b, 2012).
Why should one not expect to observe unconditional convergence at the
global level?
However, the 1990s and the 2000s saw a wave of works showing no evidence for
absolute convergence and stating the idea of conditional convergence instead. Thus,
Barro viewed 98 countries in the period 1960-1985 and refuted the hypothesis of
absolute convergence, stating that “the hypothesis that poor countries tend to grow
faster than rich countries seems to be inconsistent with the cross-country evidence”
(Barro, 1991, p. 407). Mankiw et al. also studied a sample of 98 countries, proved the
absence of absolute convergence in per capita income during the period 1960-1985, and
introduced the notion of conditional convergence, stating that “the Solow model
predicts convergence only after controlling for the determinants of the steady state”
(Mankiw et al., 1992, p. 422). Sala-i-Martin analyzed a set of 110 countries and only
found evidence for conditional convergence, stating 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. [y] in our world there is no absolute
b-convergence” (Sala-i-Martin, 1996, p. 1034).
The phenomenon of conditional convergence found further supporting evidence
in numerous studies with different conditioning variables (see, e.g. Caggiano and
Leonida, 2009; Petrakos and Artelaris, 2009; Romero-Avila, 2009; Owen et al., 2009;
Sadik, 2008; Frantzen, 2004; de la Fuente, 2003; Jones, 1997; Caselli et al., 1996;
Sala-i-Martin, 1996; King and Levine, 1993; Levine and Renelt, 1992; Barro, 1991;
De Long and Summers, 1991).
Currently there seems to be unanimous agreement among the researchers over the
absence of absolute convergence of per capita income across the world; rather, absolute
divergence and conditional convergence were observed in various cross-country studies
(see, e.g. Sadik, 2008; Epstein et al., 2007; Seshanna and Decornez, 2003; Workie, 2003;
Quah, 1996a, b, c; Lee et al., 1997; Bianchi, 1997; Sachs et al., 1995; Canova and Marcet,
1995; Durlauf and Johnson, 1995; Desdoigts, 1994; Paap and van Dijk, 1994).
Among the more recent works refuting the unconditional convergence hypothesis is
the cross-country analysis of GDP per capita values between 1960 and 2000 by
Acemoglu (2009); he maintains that “there is a slight but noticeable increase in
inequality across nations,” i.e., divergence rather than convergence (Acemoglu, 2009, p. 6).
Some works view the phenomenon of convergence in particular economic sectors.
Thus, Rodrik finds evidence for unconditional convergence in manufacturing across
118 countries, but notes that “despite strong convergence within manufacturing,
aggregate convergence fails due to the small share of manufacturing employment in
low-income countries and the slow pace of industrialization” (Rodrik, 2013, p. 165).
 

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